International Regime, Domestic Politics and Telecommunications Technology: Jamaica in the Information Age

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This work is made publicly available by the City University of New York (CUNY). Contact: [email protected] INTERNATIONAL REGIME, DOMESTIC POLITICS AND TELECOMMUNICATIONS TECHNOLOGY: JAMAICA IN THE INFORMATION AGE

JUDITH A. DUNCKER

A dissertation submitted to the Graduate Faculty in Political Science in partial fulfillment of the requirements for the degree of Doctor of Philosophy, The City University of New York

2004

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Abstract

INTERNATIONAL REGIME, DOMESTIC POLITICS AND TELECOMMUNICATIONS TECHNOLOGY: JAMAICA IN THE INFORMATION AGE

Judith A. Duncker

Adviser: Prof. Howard H. Lentner

In September of 1988, the government of Jamaica heralded its official entry into

the information industry with the establishment of the US$2 million Jamaica Digiport

International facility. The significance of this announcement was surpassed only by the

state’s decision to close the domestic telecommunications sector to competition as the

global satellite regime and the global market embarked on its own course of

liberalization. This decision spelt victory for one of two contending factions. On the one

hand was Jamaica Promotions (Jarnpro), Jamaica’s economic development agency, which

attempted to liberalize the sector's use of satellite technology with the operation of the

American Satellite Company. On the other hand, the Ministry of Public Utility and

Transport, in conjunction with the international company Cable and Wireless,

Telecommunications of Jamaica, Industrial Commercial Development (ICD), the

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National Investment Bank of Jamaica (NEBJ) and the international support of Comsat,

elected to close the sector to competition.

The closing of the domestic telecommunications sector to competition raised two

salient questions which this dissertation addresses. First, what explains Jamaica’s failure

to liberalize the sector’s use of satellite technology, as demonstrated in its 1988 decision

to prevent competition? Second, how was it possible to undertake this measure amidst the

powerful forces of global market liberalization trends in the telecommunications sector as

well as within the international satellite regimes of Intelsat, whose principles and

practices endorsed liberalization in the provision of satellite services?

This dissertation concludes that there were two overriding sectoral characteristics

which allowed Jamaica the ability to withstand these two powerful global forces. The first

was compelling domestic interests in the sector that led to its closing. The second was the

Intelsat regime itself, which acted to protect its monopoly. Intelsat's structure and the role

played by signatories within the system functioned to protect the status quo of the single

global organization and to bar the entry of other firms whose activities did not enhance

Intelsat’s investment goals. As a result, Intelsat’s monopoly remained intact because of

limitations placed by its signatories on the operation of competitive firms given that the

liberalization of Jamaica’s domestic satellite services was inconsistent with its signatories

and their interests.

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Preface

This dissertation began as an interest in one small developing state’s attempt to

acquire satellite technology and the extent to which the information highway could create

new opportunities for development in small states that would allow them to bridge the

economic gap between the industrialized and small developing states. However, it later

shifted to the question of the impact of increasing economic openness upon a state’s

capacity to govern its national economy1 The overriding questions of interest are how

states respond to the challenges of managing their economic systems in the face of

increasing economic openness? Are states free to follow different paths in response to

openness? Do they abandon old norms and institutional arrangements and assume new

policies and new arrangements that are consistent with competitive neo-liberal norms? If

so, what might these paths be, and what determines the path a state pursues? This case

study would forge a theoretical nexus between the dynamics of state, bureaucratic

politics, international politics, multinational corporations, international

telecommunications satellite policy, modernization and development and international

satellite regimes to address this issue.

Linda Weiss, ed. States in the Global Economy: Bringing Domestic Institutions Back In. New York: Cambridge University Press, 2003.

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I am indeed grateful to those who have made this endeavor truly a labor of love.

First and foremost, I would like to thank my dissertation team who endured the lengthy

process to its completion. Thanks to Howard H. Lentner and Carolyn Somerville for

seeing it to its completion. I am also thankful to Benjamin Rivlin, the former Director of

the Ralph Bunche Institute whose support made my study at the Graduate Center of the

City University of New York (CUNY) possible. I am truly grateful to the late Ralph

Bunche and the Bunche family, without whom my doctoral degree would not be possible.

This dissertation is dedicated to my children - Desi, Stephanie, David and Jeremy

and to my grandchildren Desiree and DaShawn.

Special thanks is due to Mrs. Polly Brown, the former CEO at Jampro who

facilitated the interviews and made it possible to review Jampro records. Special thanks

is also due to Ms. Corrine McLarthy, Mrs. Brown’s predecessor, and Mr. Winston

Gooden, a former Vice President of Jampro in charge of Production and Promotion from

1983 to 1994, both of whom were central to the conceptualization and implementation

stages of the teleport project. Both availed themselves to provide the needed interviews

that made the dissertation possible. Last, but by no means least, I am indebted to Mrs.

Barbara Degroot who also labored along with me, ironing out all technical problems that

emerged during the writing of the dissertation. Without her ability to skillfully maneuver

through graphics problems and micros and macros complications of the software, the

production of the dissertation would have been considerably delayed.

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ABSTRACT...... vi

PREFACE...... vi

TABLE OF CONTENTS...... viii

LIST OF TABLES...... xi

LIST OF ILLUSTRATIONS...... xi

APPENDIX I: ABBREVIATIONS...... xii

CHAPTER ONE INTRODUCTION ...... 1

Introduction ...... 1 Domestic Institutions and the Teleport Initiative ...... 3 The Jamaica Digiport Negotiations ...... 7 Globalization and Liberalization of the International Telecommunications Sector ...... 11 International Telecommunications Sector ...... 15 Intelsat and the International Satellite Regime ...... 18 Separate Satellite Systems and the International Telecommunications Regime . 23 Jamaica and the Political Economy of Teleport ...... 24 Overview ...... 29

CHAPTER TWO DOMESTIC POLITICS, INTERNATIONAL RELATIONS AND THE POLITICAL ECONOMY OF SATELLITE TELECOMMUNICATIONS...... 33

Introduction ...... 33 Systemic-Centered Analyses ...... 35 The State-Centered Approach ...... 44 The Society-centered Approach ...... 52 Systemic Analysis and Domestic Politics: A Combined Approach ...... 58 Theories of International Regimes ...... 69 International Regime and Domestic Politics ...... 79 Hypothesis ...... 88

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CHAPTER THREE THE INTERNATIONAL TELECOMMUNICATIONS SATELLITE ORGANIZATION ...... 90

Introduction ...... 90 The Intelsat System ...... 91 The Origin of Intelsat ...... 94 Organizational Structure: the Old Agreement ...... 97 The New Operating Agreement ...... 102 Separate Systems and International Satellite Communication ...... 106 International Telecommunications System and International Regime Change . 115 C onclusion ...... i l l

CHAPTER FOUR THE INTERNATIONAL TELECOMMUNICATIONS SATELLITE INDUSTRY: ITS HISTORY AND TRANSFORMATION ...... 119

Introduction ...... 119 The History of the International Telecommunications Satellite Industry 120 Technological Challenges ...... 122 Competition and the International Telecommunications Satellite Industry . ... 124 PanAmSat ...... 127 Orion ...... 132 Factors Affecting Competition ...... 133 Restructuring ...... 137 C onclusion ...... 140

CHAPTER FIVE THE JAMAICAN TELECOMMUNICATIONS SECTOR 145

Introduction ...... 145 The History of Jamaica Telecommunications Sector ...... 148 Cable and Wireless and the Jamaican Telecommunications Sector ...... 153 The Sector’s Regulatory Climate...... 154 Familiarity with Jamaica and All Risks Involved in Business Operation ...... 157 The Sector’s Strategic Importance ...... 158 Cross-Subsidization and the Political Economy of The Jamaican Telecommunications Sector 1980-1988 ...... 161 The Cross-Subsidization Measure ...... 167

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The Merger of the Jamaica Telephone Company and Jamintel ...... 167 The Privatization and Jamaican Telecommunications Sector ...... 169 Monopolization and Regulatory Oversight ...... 172 Cross-Subsidization and its Discontents ...... 173 C onclusion ...... 179

CHAPTER SIX DOMESTIC POLITICS, THE INTELSAT REGIME AND THE JAMAICA DIGIPORT INTERNATIONAL...... 181

Introduction ...... 181 The Teleport Initiative: the Planning Stage ...... 185 Federal Communications Commission (FCC)and the Teleport Initiative .... 191 Intelsat and the Teleport Initiative ...... 194 Bureaucratic Politics and the Ministry of Public Utilities and Transport (MPUT) ...... 197 Domestic Responses to the Jamaica Digiport Project ...... 201 The Final Stage of the Teleport Project ...... 209 C onclusion ...... 211

CHAPTER SEVEN CONCLUSION ...... 214

Introduction ...... 214 International Telecommunications Satellite Regim e ...... 216 The Jamaican Telecommunications Satellite Sector ...... 218 Contribution to the Literature ...... 219 Future Research ...... 221 C onclusion ...... 224

APPENDIX II: GLOSSARY ...... 226

APPENDIX III: Private Satellite Systems Providing Services by Region, 1996 ...... 230

APPENDIX V: INTELSAT Board of Governors ...... 231

APPENDIX VI: Non-INTELSAT Separate Systems That Received

Permission to Operate ...... 233

APPENDIX VII: Number of Main Lines (Thousands) ...... 235

BIBLIOGRAPHY ...... 236

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LIST OF TABLES

Table Page

3-1 Intelsat Founding Members ...... 96 3-2 United States Companies Licensed, Operational, and with Applications Pending to Provide International Satellite Communications Services (1984-1994)...... I l l 4-1 Significant Events in Communications Satellite: 1945-1990 ...... 141 4-2 The United States’ Domestic Satellite System...... 142 4-3 Domestic Satellite Systems in the Americas...... 142 4-4 European Domestic Satellite Systems ...... 143 4-5 Regional Satellite Systems...... 143 4-6 International Satellite Systems and their Investors ...... 144

LIST OF ILLUSTRATIONS

Figure Page

i -4 The International Telecommunications Satellite Regime ...... 18 2-1 Bureaucratic Politics Model ...... 49 2-2 Cortell and Davis’ Typology of Domestic Structural Content ...... 82 2-3 Types of Domestic Structures and Countries Investigated ...... 84 3-1 The Organization and Services of Intelsat in 1970 ...... 99 3-2 The Organization and Services of Intelsat in 1989 ...... 102 5-1 Real Revenue Per Line: JTC and Jamintel, 1972-91 ...... 161 5-2 Jamintel’s Total Profits, 1973-91 ...... 163 5-3 Jamaica Telephone Company’s Gross and Net Profits, 1970-91 ...... 166

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APPENDIX I: ABBREVIATIONS

ASC American Satellite Company C&W Cable and Wireless COMSAT Communication Satellite Company FCC Federal Communications Commission ICD Industrial Commercial Development INTELSAT International Telecommunications Satellite Corporation ITU International Telecommunications Union JAMINTEL Jamaica International Telecommunications Company Jampro Jamaica Promotions Agency JATELCO Jamaica Telecommunications Company JNIP Jamaica National Investment Company JTC Jamaica Telephone Company MPUT Ministry of Public Utilities and Transport TOJ Telecommunications of Jamaica WTO World Trade Organization

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CHAPTER ONE

Introduction

In September of 1988, the government of Jamaica heralded its official entry into

the information industry with the establishment of the US$2 million Jamaica Digiport

International facility. The significance of this announcement was only surpassed by the

state’s decision to close the domestic sector to competition simultaneously as the global

satellite regime and the global satelite market embarked on its own course of

liberalization. This decision, however, spelt victory for one of two contending factions.

On the one hand was Jampro which initated the policy that attempted to liberalize the

sector's use of satellite technology using the American Satellite Company. On the other

hand, the Ministry of Public Utility and Transport, in conjunction with Jamaica’s

telecommunications providers, Cable and Wireless, Telecommunications of Jamaica, and

other interested parties elected to close the sector to competition.

This process which resulted in the closing of the sector to competition raised

two salient questions which this dissertation addresses. First, what explains Jamaica's

failure to liberalize the sector's use of satellite technology as demonstrated in its 1988

decision to prevent competition? Second, how was it possible to undertake this measure

amidst the powerful forces of global market liberalization trends in the

telecommunications sector as well as the powerful international satellite regimes of

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Intelsat whose principles and practices endorsed liberalization in the provision of satellite

services?

This dissertation concludes that there were two overriding sectoral

characteristics which allowed Jamaica the ability to withstand these two powerful global

forces. The first was compelling domestic interests in the sector that led to its closing.

The second characteristics was the Intelsat regime itself. Intelsat’s structure and the role

played by signatories within the system therefore functioned to protect the status quo of

the single global system and to bar the entry of other firms whose activities did not

enhance Intelsat’s investment goals. Intelsat's leadership therefore served as gatekeeper -

monitoring the entry of non-Intelsat satellite firms within the global market. As a result,

the monopoly status quo remained intact because of limitations placed by Intelsat’s

signatories on the operation of competitive firms because the liberalization of Jamaica’s

domestic satellite services was inconsistent with signatories and their interests.

This dissertation examines both international and domestic factors that

impinged on the outcome of the Digiport project. The analysis begins with an

understanding of the historical evolution of the Intelsat system that led to new rules and

regulations among which was the decision to allow competition and that produced the

new separate satellite systems and policies supporting them. These factors were at the

heart of the tensions that Jamaica experienced as it sought to liberalize its satellite sector.

This study also examines the implications of these changes on Jampro’s decision to

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liberalize the provision of satellite services and the implications it had on international

politics.

An understanding of the structure of Intelsat and the role played by signatories

within that structure is also central to this study. That role conditioned their domestic

preferences on the issue of telecommunications liberalizing within the domestic satellite

sector. It provides the foundation for understanding the way in which the Intelsat

monopoly regime impinged on the outcome of the Jamaica Digiport decision and the

closing of the sector.

In addition to external characteristics that impinged on the satellite negotiation,

this study will address the domestic factors that led to the outcome of the Digiport

negotiatons. In laying the foundation for explaining why Jamaica failed to liberalize its

services in satellite technology, this study will examine the domestic contexts within

which the negotiations were embedded and that also impinged on the Digiport decision.

Its focus will be on the central actors in the sector and their interests and needs that

might impinge on the outcome of the negotiations.

Domestic Institutions and the Teleport Initiative

The Digiport negotiations involved several participants, each of which exercised

differing degrees of influence. The participants were: a)The Jamaica Promotions, Inc, or

Jampro, b) the Jamaica telecommunications providers: Jamaica International

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Telecommunications Company (Jamintel), Jamaica Telephone Company (JTC) and

Telecommunications of Jamaica, the parent of both entities; c) Cable and Wireless, the

Jamaican subsidiary of the British telecommunications company;2 d) the Ministry of

Public Utilities and Transport, e) Industrial Commercial Development Ltd., an indigenous

enterprise with investments in Jamintel, and f) the prime minister’s office.

All of the participants played major roles at different levels of the satellite acquisition.

The Teleport project was initially conceived in 1985 by the Jamaica National

Investment Promotion (JNIP) which was later transformed into the Jamaica Promotions

(Jampro) in April 1988. Jampro was the result of a merger between three bureaucracies:

the Jamaica Industrial Development Corporation (JIDC), the Jamaica National Export

Corporation (JNEC), and JNIP. It was established as a limited liability company in 1988

but was changed to a statutory body in 1990. The purpose of the merger was to achieve

greater efficiency and to streamline the economic development process.

Jampro’s new mandate was “the development and implementation of programs

to encourage investment, provide training, modernize industries and stimulate export

2At the beginning of the negotiations the Jamaican government owned the majority share in JAMINTEL; however, in subsequent negotiations with the IMF, Jamaica was forced to abandon its shares, increasing those of Cable and Wireless, and selling the remaining shares to Industrial Commercial Development Ltd.[See Canute James, “State Reduces Holdings in Jamaica Telecoms Group,”in The Financial Times (London), Sept., 6,1988, p.27)]. "

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. trade for Jamaica.”" It was also given the charge to “create jobs and increase productivity

in targeted industries through the effective delivery of technical promotional and

facilitatory services.”4 Jampro’s jurisdiction was the Ministry of Production, Mining and

Commerce; however, it had its own board of directors which consisted of 14 members

that were drawn from the private sector.

Cable and Wireless, the British multinational corporation, owned 80% of

Telecommunications of Jamaica, the parent company of Jamintel. Jamintel was the

division of Telecommunications of Jamaica that was responsible for the overseas traffic

of telecommunications service. Jamintel was also Jamaica’s signatory to Intelsat. Cable

and Wireless and Jamintel were both firmly committed to the Intelsat monopoly system

of which they were a part’s owner Eli Matalon purchased 21% of Telecommunications of

Jamaica in 1987 when the Jamaican government privatized telecommunications, making

him the only private individual investor.5

Deryck R. Brown, ed. Evaluating, Learning and Caribbean Development, (Kingston, Ja.: Canoe Press. U.W.I., 1998)p. 42.

4 Ibid.

See unpublished paper by Pablo T. Spiller and Cezley I. Sampson. Regulation. Institutions and Commitment: The Jamaican Telecommunications Sector. March 23, 1993, p. 25.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. The interested parties to the negotiations fell in two distinct camps. On the one

hand was Jampro whose intent it was to avail itself of newly emerging foreign technology

and expertise. On the other hand were the domestic telecommunications suppliers- Cable

and Wireless and Telecommunications of Jamaica. The former sought to diversify into

new technology whereas the latter sought to remain within the Intelsat system through

which it had economic ties. The winning coalition in the negotiations desired the

continuation of the Intelsat monopoly which the sector enjoyed since 1963 and with

which they had established . This monopoly operation using both Cable and Wireless and

Telecommunications of Jamaica was instituted by the Ministry in 1988. Its actions were

part of a restructuring plan that was designed to prevent the operation of competitive

satellite systems in the domestic component. The goal of the restructuring plan was to

facilitate the new cross-subsidization policy to protect the domestic component.

Paradoxically, the decision to allow the use of separate satellite systems was

authorized by Intelsat’s signatories whose interest it was to have the sector remain closed

to competition. In Jamaica, the signatories had an interest in the market’s remaining

closed, and they would benefit from such a closing. As a result, Intelsat’s signatories

failed to act to open the market in accordance with Intelsat’s policies. Coalition politics

had a greater effect on Jamaica's failure to liberalize the use of satellite services than

global trends and regime practices. These domestic interests in the sector served as the

second set of factors that led to the closing of Jamaica’s sector to competitive satellite

technology.

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Jampro was unsuccessful in liberalizing the Jamaican telecommunications sector

because the needs of the domestic signatory were at odds with the prevailing international

regime norms. As a result of the structure of the international telecommunications regime

and the enormous influence of the signatories in Intelsat, Jamintel and Comsat were able

to override the international regimes’ separate satellite systems policy in its attempt to

preserve Jamaica’s monopoly status quo. Jamaica was then able to block competition at

the domestic level.

Jamaica Digiport Negotiations

For more than two decades, beginning in 1963, the International

Telecommunications Satellite Company (Intelsat) stood at the apex of a highly

centralized international satellite regime where it served as the single legitimate supplier

and regulator of international satellite service. However by 1984, the regime began to

change its character with the introduction of new firms and the passing of a separate

satellite system policy by the United States which allowed the operation of non-Intelsat

companies. Nevertheless, despite the changing character of the international satellite

regime at the international level, nations seeking to take advantage of the new permissive

climate found themselves stymied at the domestic level. Those seeking to avail

themselves of newer non-Intelsat satellite systems were finding it impossible to do so.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. In 1989, the fifth year of Jampro negotiations to acquire licenses for the operation

of a United States’ satellite company in Jamaica, the negotiators failed. Jampro was

unsuccessful in acquiring the domestic license for the operation of the US satellite

company despite their initial success in gaining approval from Intelsat and the United

States’ Federal Communications Commission (FCC). Approvals from both of these

agencies were requisite for the use of satellite companies operating outside the Intelsat

system. Nevertheless, despite Intelsat and FCC approval, the Jamaican government

ultimately continued operating within the Intelsat satellite system in Jamaica instead of

using the competitive non-Intelsat satellite system which Jampro originally intended.

Jampro’s failure to acquire the license to operate the non-Intelsat satellite system,

which compelled Jamaica to remain within the Intelsat monopoly system, occurred after

the historic decision to permit the operation of non-Intelsat satellite systems. It also

occurred during the decade in which economic liberalization, primarily but not only in the

telecommunications sector, spread throughout the industrialized nations in the United

States, Western Europe and Japan and then throughout the globe.

This dissertation examines why liberalizing changes in the telecommunications

regime at the international level failed to take root at the domestic level and why it was

that Jamaica chose to remain within the Intelsat system using Intelsat satellites despite the

availability of more competitive satellites. Ignoring international approval to utilize an

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outside satellite and the more liberalized international telecommunications climate,

Jamaica chose to remain faithful to the single global system.

Jampro was unsuccessful in acquiring a domestic license to operate the separate

satellite system. Instead, the government chose to remain within the Intelsat monopoly

system even after Intelsat and its most powerful members, the United States and Great

Britain, approved the operation of separate satellite systems within Jamaica’s borders.

The dissertation seeks answers an answer to why Jamaica made such a decision at the

historical juncture that it did when liberalization had indeed taken root in the

telecommunications as well as in other sectors. Developing nations were also seeking

relief from dominant monopolies within their borders.6 These issues are examined

through the lens of the Jamaica Digiport International project negotiations.

Jamaica’s failure to liberalize its telecommunications sector was a peculiar

occurrence for several reasons. First, it transpired at a historic juncture when

6 Ben Petrazzini, The Political Economy of Telecommunications Reform in Developing Countries; Privatization and Liberalization in Comparative Perspective (Westport, CT: Greenwood Publishing Group, 1995). See also Paul Cook and Colin Kirkpatrick, eds. Privatization in Less Developed Countries (New York: St. Martin’s Press, 1988); Bella Mody, Joseph D. Straubhaar and Johannes Bauer, eds. Telecommunications Policy: Ownership and Control of the Information Highway in Developing Countries ( Mahwah, NJ: Lawrence Erlbaum and Associates, 1995); Alex E. Jilberto and Andre Mom men eds. Institutional and Economic Change in Latin America. Africa and Asia (New York: Routledge, 1996); and Christopher S. Adam, William P. Caverdish, and Percy S. Misty, Adjusting Privatization: Case Study for Developing Countries (Oxford: Heinemann, 1993).

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liberalization of domestic telecommunications sectors had crescendoed across the globe.

Second, at the helm of this movement were the system’s leaders from the industrialized

nations of the United States, Europe and Japan who were determined in their goal to

liberalize the telecommunications regime. Third, Jamaica’s failure to liberalize occurred

in an issue area which was highly institutionalized, one in which regime rules were

established through a hierarchical structure and where rule enforcement was paramount.

The goal of this dissertation is to determine how domestic interests were able to prevail

given the new order of liberalization in the international telecommunications regime;

global leadership committed to this new order and institutionalized system where

enforcement was paramount.

While analysts have stressed the importance of either the domestic political

process, the structure of the international system or both in explaining policy outcomes, I

will argue that explanations which refer solely to either domestic processes or

international systems are necessary but not sufficient to explain the international satellite

sector. This analysis will define a sector as a population of firms producing a specified

range of potentially or actually competing products and the institutional arrangements

required to coordinate the activities generated within sectors or across sectors. So while

this analysis acknowledges that both domestic political processes and international

regime processes are important for explaining the decision to remain within Intelsat’s

single global system, the defining factor for understanding policy outcomes is the sectoral

characteristics that impinge on both domestic and international political processes. These

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. structural characteristics of the international satellite sector include the number and type

or firms in operation and the role played by these firms in both the domestic and

international processes.

Globalization and the Liberalization of the International Telecommunications

Sector

The decade of the 1980s was characterized by the liberalization of the

telecommunications sectors of many nations within the global economy. This was the

process in which domestic telecommunications sectors which had restricted the sector to

the operations of one firm, had released these restrictions to accommodate multiple

operators. These changes began first in the equipment market and moved to include

services, rapidly eroding the position of monopoly suppliers. Beginning first in the United

States, Britain and Japan, the changes moved throughout the industrialized nations to the

post, telephone and telegraph (PTT) agencies of the developing nations. The wave of

liberalization resulted in the breakup of large monopolies in Europe and Latin America

and Japan, the privatization of state-owned telecommunications enterprises (SOTEs),

liberalization of domestic markets and the deregulation of many domestic

telecommunications sectors in developing nations.

Within the industrialized nations, liberalization came as a result of internal

pressure from several sources. The first source of pressure came from governments of

nations caught up in the information revolution. These governments held the view that,

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for them to make the transition into the new post-industrial society, it was imperative that

they “unleash the competitive and entrepreneurial drive of the private sector.”7 They then

allied with large corporate users in service industries such as international banking and

finance, the mass media and transportation which relied heavily on telecommunications,

believing that the only efficient means at arriving at this post-industrial information age

was through the liberalization of the economy. The changing needs of industries required

more customized and diversified telecommunications services. The telecommunications

sector needed to be free from the burden of regulation as members of the sector moved

into a new sphere in which new telecommunications technology began to merge with new

computer technology. Both the telecommunications sector and the computer sector

preferred a more liberal telecommunications sector where more competition would result

in cheaper and more specialized services and equipment, thereby benefitting the nation

and the economy as a whole.8

The breakup of the AT&T monopoly into smaller firms in the United States began

a series of liberalization measures within the global telephone and telegraph sector. A

similar trend subsequently spread throughout the major industrialized nations in Europe

and Japan, ending in the demise of many national telecommunications monopolies and in

the creation of competition. In the international satellite sector, liberalization was not

7 Kelly Lee, Global Telecommunications Regulation: A Political Economy Perspective (London: Pinter, 1996), p 109.

8 Ibid, p. 112.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. without restraint. Intelsat, with the support of Japan and the major industrialized nations

in Europe and the United States, agreed to the use of non-Intelsat systems solely on

condition that they did not conflict with or undermine the Intelsat global monopoly.

Unlike the situation in the industrialized nations where liberalization emerged as a

result of internal pressures from competition, in the developing nations liberalization was

a result of pressures outside the telecommunications sector. Liberalization was

precipitated by pressures from international financial institutions in response to the

economic and fiscal crises these governments faced. These externally recommended

privatization and liberalization of SOTEs were readily adopted by these states as the

solutions to the fiscal and economic crises these governments faced.

In the early 1980s developing nations began to give considerable attention to the

reform of their telecommunications sectors where liberalization had till then failed to take

root. Petrazzini’s insightful work attempts to understand why nations fail in their attempts

to liberalize their telecommunications sectors. The author argues that a nation’s failure to

liberalize can be explained by two factors: a) the economic profile of the nation and b) the

timing of the nation’s liberalization attempt vis-a-vis attempts to privatize. Nations that

are not appealing to major investors or who are experiencing economic crises, such as

Jamaica and Argentina, those with “poor economic prospects,” the author argues, are

more likely to fail in achieving privatization and liberalization simultaneously than

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nations that attract major investors - those “an attractive economic profile.” 9 In nations

with “reasonable economic prospects” such as Mexico, Malaysia and Thailand,

liberalization had a greater likelihood to succeed if it occurred simultaneously with the

sale of the SOTE.

In the event that a nation chooses to liberalize its telecommunications sector prior

to privatizing the sector, Petrazzini argues, the state has to resist the deeply entrenched

domestic anti-liberalization coalitions consisting of state managers and state employees.

Opposition to liberalization was relatively high. Nevertheless, when liberalization

targeted non-basic services, such as the provision of satellite services, opposition to

liberalization was found to be low due to the fact that most national carriers in developing

nations were unable to provide non-basic services in the short ran; therefore,

liberalization was expected to succeed. Other nations, such as Argentina, sacrificed

liberalization which allowed the entry of multiple firms in favor of successful

privatization where state-ownership was replaced by private ownership.10

The analysis of the Jamaica Digiport Initiative supplements Petrazzini’s analysis

in several ways. First, it highlights the differences in the characteristics of the

telecommunications satellite sector from that of the telephone and telegraph sector, a

difference which will be explained by the international structure of governance. Second, it

9 Petrazzini, pp. 30-33.

10 Ibid.

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addresses and introduces an additional scenario in explaining liberalization in the

telecommunications sector distinct from those addressed by Petrazzini, that is,

liberalization after privatization. Third, it adds the dimension of liberalization in the

context of non-basic services. Finally, it contributes a fuller understanding of the role of

nonstate actors in the international telecommunications sector.

International Telecommunications Sector

The international telecommunications sector consists of three elements:

international governance, a global network of national telecommunications governance

systems, and international markets (Figure 1-2). The governance of the sector consists of

international regulatory agencies such as the International Telecommunications Union

(ITU), which oversees international telephone and telegraph services, and Intelsat, which

oversees international satellite and space technology services as well as

telecommunications operations at the national level. These international institutions set

the rules within which companies operate in the international telecommunications system.

At the international level, the ITU provides governance in the area of telephone and

telegraph while Intelsat provides governance that is limited to the telecommunications

satellite sector. A third telecommunications institution, the International Maritime

Satellite Organization (Inmarisat), provides governance in the area of marine

telecommunications

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The second element of the international telecommunications system consists of

national telecommunications regulatory systems. National regulatory agencies, such as

Jamaica’s Ministry of Public Utility and Transport, are governmental agencies or national

post, telephone and telegraph agencies (PTTs) that oversee and regulate the supply and

use of domestic telecommunications services. In many developing nations, where the

telecommunications companies that supply telephone and telegraph services have most

often been foreign multinationals, these bureaucracies negotiate the terms of the

contractual arrangements under which the corporations that supply domestic

telecommunications service operate. These bureaucracies may also prevent companies

from providing services by denying a license to operate.

The third element of the international telecommunications system is the global

market which consists of major telecommunications multinational corporation suppliers

or carriers, such as Cable and Wireless and American Telephone & Telegraph (AT&T).

These suppliers design, manufacture, and distribute telecommunications goods and

services such as telephone, telegraph, satellite, computer equipment and related services.

These services are sold or distributed to both corporations and households.

The ownership-control structures of suppliers of telecommunications services in

the national markets have ranged from public (100% government-owned) companies to

privately owned telecommunications companies. Within this range are suppliers with a

combination of private and public ownership. This variety of ownership structures not

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only characterizes the global market but may also describe variations in the internal

structure of a supplier, for over a period of time a corporation may also shift between

private and public ownership.

One subset of the telecommunications market is the market for satellite goods and

services (Fig. 1-3). This segment has grown in importance as a result of to the rapid

changes and developments in information technology since the 1980s. In addition to the

proliferation of technological innovations and increasing demand in this sector, there has

also been increased participation of both international and national regulatory agencies in

the governance and regulatory activities of the sector.

The breakup of AT&T in the United States in 1984 opened the way for new

competitive firms to enter the international telecommunications market. Similar breakups

were to follow in other industrialized countries. In the same year the state-owned British

Telecom (BT) of Great Britain began selling its shares to private investors as a prelude to

the creation of a more competitive industry. Concurrently, a similar contagion swept

through other European nations as well as Japan — all of which experienced breakups of

their telecommunication monopolies and privatization of their telecommunications

operations.

Similarly, new companies emerged in the satellite sector. Some companies, such

as MCI and Sprint, had already been in existence but were restricted by Intelsat and FCC

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regulations from fully accessing the global marketplace. Other newly-created companies,

such as Orion and PanAmSat, needed the necessary FCC authorization to operate in the

global marketplace and provide services. (Appendix III). Many of the newly created

firms that emerged in this period were equipped to supply satellite and other

telecommunications services to both developed and developing nations, but while barriers

to entry into the telephone sector were eliminated, in the telecommunications satellite

market new satellite companies still encountered barriers to free competition. The

increasing number of firms seeking to participate in the international satellite market

wereexpected to later impact Intelsat and the international telecommunications satellite

regime, resulting in the transformation of its existing operating procedures.

Intelsat and the International Satellite Regime

Figure 1-1: International Telecommunications Satellite Regime

International System INTELSAT

National System RegulatoryAgencies Regulatory Agencies (FCC, OFTEL, etc.) (Public Utility Board)

INTELSAT Separate Econom ic N ational INTELSAT Signatory Signatories System s Development Elite (Foreign Owned) A gency Telecom. Monopoly

INDUSTRIALIZED NATIONS DEVELOPING NATIONS Based on principle of liberalization Based on system of monopoly, privatization of national telecommunication system

Arrows indicate the direction of authority and control

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Jamaica’s decision to close the telecommunications sector to competition was

determined by two sets of forces - one internal and the other external. The external force

which played a large role in the outcome of the sector was the Intelsat regime. Intelsat

was an international intergovernmental organization established by the industrialized

nations in 1963 as the governing body of the international satellite system. The

organization had two types of members: corporate members, known as signatories, and

state representatives. The corporate representatives consisted of both the domestic

monopolies of developing nations through which member nations received Intelsat

satellite services and technology as well as corporations appointed by industrial nations

— such as Comsat — to represent their national satellite interests. Participating nations

were represented by government officials as well as signatories — both having the

responsibility of formulating Intelsat’s rules, while being subject to Intelsat Board of

Directors.

Intelsat’s dual membership structure reflected the organization’s dual function in

the international telecommunications satellite system. One function of the organization

was to govern the international satellite system through legislation and regulation. It

established the rules by which the market for satellite technology and services operated.

Its second function was that of the principal supplier of commercial satellite services to

member nations, a function that was carried out through its signatories. As a commercial

organization, Intelsat drew on those of its signatories which manufacture and innovate

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satellite technology which the organization’s manager in turn distributes to its member

nations.

In Intelsat’s earlier years, its commercial activities were carried out by the

Communications Satellite Corporation (Comsat), the United States’ signatory, which also

served as manager. During the first decade, Intelsat was the only supplier and regulator of

the international satellite system. In that initial stage of Comsat’s management, its

primary responsibility was supplying satellite services to member nations and to engaging

in research and development. Comsat’s own commercial satellites were utilized in the

provision of satellite services through the Intelsat system. Comsat also became the

primary beneficiary of the organization’s research endeavors.

Intelsat’s commercial operations began to thrive under Comsat’s management.

However, Comsat’s domination of the research, development and manufacturing of

satellite technology became a source of contention among the other European signatories

seeking a competitive edge in the satellite technology race. Added to the European

opposition to Comsat was the mounting opposition from the new firms within the United

States such as Sprint, MCI and PanAmSat, which later served as catalysts for change of

the international satellite system.

By the late 1970s, when the new firms began to emerge, a new and more

competitive international satellite system began to take shape. The new

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telecommunications suppliers consisted of the newly-formed Orion and PanAmSat, as

well as other regionally owned or operated systems such as Arabsat of the Arab world,

Eutelsat of Europe and Association of South East Asian Nation’s (ASEAN) Palapa

(Appendix II). The member nations from which these new satellite companies emerged

welcomed the new satellite systems on the grounds that they provided services in areas

which Intelsat did not or could not reach. As the heavily-trafficked North Atlantic route

continued to grow, more satellite companies attempted to enter the international satellite

market to challenge Intelsat’s monopoly in the provision of services within the heavily-

trafficked North Atlantic route. PanAmSat was the first of these firms seeking to

challenge Intelsat’s monopoly.11

The entry of new firms in the international market did not signify an end to

Intelsat’s monopoly since new companies could not operate without the authorization of

Intelsat. Instead, the growing number of new firms only increased the regulatory

responsibilities of Intelsat. Because many had the capability of competing with Intelsat’s

services, states desiring the use of these new firms had to petition Intelsat’s executive

board, known as the Board of Governors, for approval.

Terry Dodworth, “Launch Of Private Satellite To Challenge Intelsat’s Monopoly,” Financial Times (London), October 5, 1987, p.44. See Chapter 3 for a list of other firms that emerged with similar intent.

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The Board of Governors makes decisions regarding the use of both international

and domestic satellites. Approval would be granted provided that companies did not

interfere, either economically or technically, with the provision of Intelsat satellite

services.12 Intelsat allowed non-Intelsat corporations limited opportunities to supply

satellite services only if approval from Intelsat and other domestic authorities were

granted. Intelsat continued to maintain its monopoly over satellite services by reserving

the right not to approve the operation of firms that compete with Intelsat. Nevertheless

limited opportunities existed for newer companies to operate in areas that constituted new

services or where Intelsat did not possess the technical capability to operate.

The non-Intelsat satellite system had to pass the technological scrutiny of the

organization. This meant that such systems had to be technologically compatible with

Intelsat satellite systems. The non-Intelsat system also could not jeopardize Intelsat’s

economic security. A new company could also not interfere with Intelsat's ability to make

a profit. All non-Intelsat companies — without exception — were required to undergo the

approval process since these new suppliers were perceived by Intelsat’s members as

competitors to Intelsat and a threat to Intelsat’s income.

Any system that failed to adhere to Intelsat’s technological or economic criteria

would be forbidden to provide satellite services to the global marketplace. This regulatory

See Chapter 3 for more details.

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process provided the needed assurance to Intelsat members that Intelsat’s income would

not be threatened by its competitors. At the same time Intelsat allowed the newer firms to

assist in the provision of services in the heavily-trafficked areas, where increased supply

was needed, on condition that their activities did not jeopardize Intelsat’s income in these

markets.

Separate Satellite Systems and the International Telecommunications Regime

In the United States in 1984, following the break up of AT&T, new firms

attempted to gain licenses from the FCC to provide satellite services in the international

markets. The FCC received a number of applications filed by films petitioning for

authorization to establish separate satellite systems to operate globally. The volume of

new applicants and subsequent pressures to grant approvals led to the issuance of

Presidential Determination Number 85-2 in 1984, which was later known as the United

States’ separate systems policy.13 This policy authorized the operation of separate satellite

systems in the US. It constituted a shift in US domestic policy that would significantly

transform Intelsat’s twenty-year commitment to Intelsat as the sole provider in this single

global system.

Ibid.

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The United States’ decision generated a variety of responses both domestically

and internationally.14 Several new firms such as the American Satellite Company seeking

to enter the international satellite market, welcomed this new policy because it promised

new opportunities for them to provide services. Intelsat signatories such as Comsat, Cable

and Wireless, and Jamintel, strongly opposed the new policy allowing the operation of

private firms.1'1 However, despite the internal opposition of many of Intelsat’s members,

Intelsat adopted its own separate satellite system policy allowing the operation of new

companies under specified conditions.16

Jamaica and the Political Economy of the Teleport

The new separate satellite systems offered new opportunities for Jamaica’s

economic growth as well as opportunities for potential conflict. The new policy opened

the way for an array of new firms and new services, broadening the scope of services

provided by Intelsat. It provided competition among new firms, promising lower costs. In

1984, at the beginning of these cascading international changes, Jampro, the agency with

14 Judith Tegger Kildow, INTELSAT, Policy-Makers’ Dilemma. (Lexington, MA: Lexington Books, 1973).

15 See INTELSAT, “INTELSAT Director General Statement on United States’ Actions Regarding Separate Satellite Systems,” BG-64-76E, August 19, 1985.

16 Ibid. Intelsat approval would be granted only if the proposed service would not cause economic or technical harm, that is, only if Intelsat could not provide the service and if the proposed service was either new or significantly different from those services offered by Intelsat.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. the responsibility of formulating and implementing Jamaica’s economic development

plans — decided to establish the Jamaica Digiport International.17 The Digiport was

Jamaica’s attempt to avail itself of the changes in information technology which would

allow Jamaica to establish its offshore processing industry.18 The upgrading of the

infrastructure meant the acquisition of a high speed teleport facility that could most

effectively transfer large amounts of data to be processed using more sophisticated

satellite systems.

As a result of the liberalization in telecommunications in the industrialized

nations and the United States, there were a number of satellite companies available to

provide satellite services at a cost that was lower than that of the Intelsat system. 19 From

the increasing number of available firms, Jampro selected the American Satellite

Company as its carrier, based on research on its technology and its costs. Jampro

17 Hereafter known as the Digiport is Interview with Mr. Winston Gooden, a former Vice President of Jampro in charge of Production and Promotion from 1983 to 1994 at the Jampro headquarters in Kingston, Jamaica, on July 21, 1993.

19 Federal Communications Commission, Separate Satellite Systems for International Communications: In the Matter of Establishing Satellite Systems Providing International Communications,@ 101 F.C.C. 2d 1046 (1985), pp 290-291. Also Interview with Mr. Winston Gooden, a former Vice President of Jampro in charge of Production and Promotion from 1983 to 1994, on July 20, 1993. Also see Memo from Teleport International to JNIP dated May 1984, located at the Jampro Archive (JA) in Kingston, Jamaica, West Indies.

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determined that the American Satellite Company was the company which offered the

most efficient technology at the lowest cost.20

The selection of a United States non-Intelsat satellite company required three

levels of negotiation. Jampro required negotiations with Intelsat, the Federal

Communications Commission (FCC) and finally with Jamaica’s Ministry of Public

Utilities and Transport. Intelsat’s separate satellite systems policy required that Jampro

first seek approval from Intelsat.21 Jampro required FCC approval because the American

Satellite Company was a United States company.22 Third, Jampro needed the Ministry’s

approval for the American Satellite Company to operate locally. These negotiations

lasted from 1984 and 1989.

20 A teleport is a state of the art telecommunications facility that has three distinct elements; the ability to transport data, voice and images from one location to a next, a high speed satellite that is capable of carrying enormous amounts of information very long distances in relatively short periods of time at lower costs, and a private telephone network that provides special services to businesses, such as 800 numbers.

INTELSAT, “Technical compatibility Consultation”, BG-70-7; INTELSAT, “Preparation for the next Assembly of Parties,” BG-70-3E; INTELSAT, “Economic Harm Discussions,” BG-70-10E. See also INTELSAT, "Events in the United States Relating to Separate International Satellite Systems", BG-72-44E B/6/87, Pg 5. The document may be found at the FCC office in Washington, D.C., United States of America.

22 Ibid. See also Federal Communications Commission, Separate Systems Notice. 100 FCC 2d at 294, 314; Separate Systems Order. 101 FCC 2d at 1090; Separate System First Reconsidered paragraph 5.

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Jampro’s commitment to securing the American Satellite Company was met with

opposition from several sources. Jamintel, Cable and Wireless, and the Ministry

disapproved of the use of American Satellite Company.23 They perceived that decision as

an economic threat to their interests in the Intelsat system.24 They argued that

Telecommunications of Jamaica was capable of supplying the requisite satellite services,

making use of the American Satellite Company an infringement on the domestic supply

of services.2:1

Industrial Commercial Development also voiced its opposition to the use of the

American Satellite Company. Eli Matalon argued that the introduction of a newer

telecommunications company constituted a violation of the contract between the

Jamaican government and Cable and Wireless, and would undermine Cable and Wireless'

ability to generate future profits. Industrial Commercial Development joined with the

23 The Ministry raised opposition to Jampro in a letter dated August 28, 1985, (JA). See also a letter to both JAMINTEL and the Ministry from Cable and Wireless dated April 5, 1986, (JA); a letter to JAMINTEL and the Ministry from the chairman of the board of Directors of Cable and Wireless, April 5, 1986, (JA); a letter to the Prime Minister from Mr. Mayer Matalon, brother of Eli Matalon, Chairman of the Board of Industrial Commercial Development, the Chairman and CEO of the Jamaica Telephone company, on April 15, 1986. (JA);

2 4 A letter to JAMINTEL and the Ministry from the chairman of the board of Directors of Cable and Wireless. April 5, 1986, (JA).

25 Ibid. Opposition was based on JAMINTEL’s “Proposal for he Provision of Enhanced Telecommunications Services for Jamaica’s Free Zone,” (JA).

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Ministry in maintaining their committment to maintaining the use of the Intelsat system,

of which Industrial Commercial Development and Cable and Wireless were a part.26

At the end of the five years of negotiations with Intelsat, the FCC and the

Ministry, Jampro managed to acquire two of the three authorizations - that of Intelsat and

FCC. Despite the approvals, the prime minister and his cabinet made the determination to

maintain the Intelsat monopoly in Jamaica. Thus, Jampro was unsuccessful in acquiring

the authorization for the American Satellite Company to operate in the Digiport project.

Instead, Cable and Wireless, AT&T and Jamintel entered into a partnership which

allowed them to operate the Digiport project using the Intelsat satellite system.27 Coalition

politics was crucial to the outcome of the negotiations

The alliance of Industrial Commercial Development with Cable and Wireless,

Jamintel and the Ministry, all desiring to preserve the Intelsat monopoly, resulted in the

preservation of the Intelsat monopoly status quo and insuring the use of Intelsat satellites

for the teleport. Internationally, Comsat’s successful challenge of the FCC approval of the

American Satellite Corporation in the US courts further solidified its monopoly of the

international satellite market. The powerful influence of the winning coalition was

See footnote 16.

27 TCanute James, ’’AT&T, Britain Join In Jamaica Data Project,” Journal of Commerce, February 23, 1988, p.5a. See also “AT&T In Joint Venture Agreement To Establish Digiport.’The Daily Gleaner. Kingston, Jamaica, Feb. 19.

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responsible for its success and Jampro’s failure to negotiate the license needed to

liberalize the operation of a separate satellite system in the sector. The result confirms

that coalition politics had a greater effect on Jamaica's failure to liberalize the use of

satellite services than global trends and regime practices as a result of domestic interests.

Overview

Chapter Two explores the international relations literature, particularly the way in

which the present literature has evolved in its analysis of the relationship between

international and domestic politics in explaining domestic policy outcomes. The chapter

will argue that even though there has been a narrowing of the gap in the literature which

has evolved in its inclusion of both realms in the analysis of domestic outcomes, in the

area of international regimes, more effort is still needed. This study of the Jamaica

Digiport negotiations will be used to demonstrate the fruitfulness of this endeavor. The

chapter will argue that in the issue of the international telecommunications satellite, a

model that includes both domestic and international systemic analysis is indispensable for

understanding domestic as well as international policy outcomes.

Chapter Three is the first of two chapters which lays the international context on

which Jamaica’s decision to establish the Digiport decision using a competitive domestic

satellite system was undertaken. It accomplishes two objectives. First, it analyses the

historical evolution of the Intelsat system which produced the regulations that allowed

competition. The chapter describes the conditions that preceded Jampro’s decision to use

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a separate satellite system. The chapter also analyses the structure of Intelsat and the role

played by signatories within that structure. It examines the challenges to this system

posed by liberalization in the telecommunications sector and the subsequent separate

satellite systems rule and the responses of its constituents to the new challenges. Finally,

the chapter lays the framework for understanding how Intelsat affected the domestic

satellite policy outcomes of member states, as was seen in the Digiport negotiations.

Chapter Four, the second of the two chapters which addresses the international

context which impinged on the Jamaica Digiport negotiations, looks at the evolution of

the international satellite industry in the United States and Western Europe. In 1984,

when the negotiations were under way, the global market began to experience

transformations in its structure, where it moved from a sector with few firms and

significant barriers to one with many firms and more accessible to newer commercial

entities. It examines the way in which the international telecommunications satellite

market has been transformed through the emergence of new companies. The chapter

examines the evolution of the international satellite market from 1960 until it

experienced significant transformations in 1989 when the Digiport decision was

implemented, highlighting the technological changes that occurred and the implications

of these innovations for the Digiport negotiations. Finally, the chapter examines the

implications of these transformations on the global market.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Chapter Five begins the analysis of the Digiport negotiations by examining the

domestic context within which the telecommunications sector was located at the time of

the negotiations. The chapter begins with an examination of the historical evolution of the

sector and demonstrates how it progressed from multiple providers to that of the single

Cable and Wireless monopoly. Second, it examines the domestic and international

economic contexts that impinged on a state-directed restructuring of the sector that

resulted in Cable and Wireless’ emergence as the dominant supplier of the sector and the

ways in which this restructuring impinged on the Digiport negotiations. The chapter lays

the foundation for explaining why Jamaica failed in its attempt to liberalize its services in

satellite technology.

Chapter Six examines Jamaica’s negotiations for permits from Intelsat, the FCC

and the Ministry for the use of a United States’ non-Intelsat satellite corporation. The

chapter examines the interaction between the domestic political processes and the

changing international telecommunications regime processes that resulted in Jampro’s

failure to win the battle for the non-Intelsat satellite company. The chapter examines the

process of intense opposition from Cable and Wireless, Jamintel and the Ministry that

ended in defeat for Jampro. Despite liberalization and the apparent openness of the

international telecommunications regimes, the choice of satellite technology was still

restricted by constraints that can best be understood by an analysis of the sector.

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Finally, Chapter Seven concludes that there were two overriding sectoral

characteristics which allowed Jamaica the ability to withstand these two powerful global

forces. The first factor that led to the coalition’s success was the structure and processes

within which the regulation of the global sector occurred. The Intelsat system functioned

by setting guidelines for the operation of the global satellite. Among the guidelines was

the separate satellite systems policy whereby national systems were permitted the use of

separate systems which do not undermine Intelsat’s operations.

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CHAPTER TWO

DOMESTIC POLITICS, INTERNATIONAL RELATIONS AND THE

POLITICAL ECONOMY OF SATELLITE TELECOMMUNICATIONS

Introduction

The last two decades have seen a proliferation of international relations literature

emphasizing the importance of combining both domestic politics in the analysis of

international relations as well as incorporating international factors in explaining

domestic decisions.28 This reflects a measure of progress that has occurred in the field

since the post World War era when the realist paradigm gained preeminence as the most

acceptable conceptual framework for understanding and explaining interstate relations.

This system level paradigm was the dominant mode of international politics analysis.

Realism was one approach that devalued the role of nonstate actors, international

28 Wolfram F. Hanrieder, “Dissolving International Politics: Reflections on the Nation-state” American Political Science Review, Vol 72, #4 (1978), pp. 1276-87; and G. John Ikenberry, “The State and Strategy of International Adjustment” World Politics, Vol 39, #1, 1986, pp 53-77; Lisa Martin and Beth Simmons, “Theories and Empirical Studies of International institutions,” International Organization at Fifty: Explorations and Contestations in the Study of World Politics: , Vol 52 #2, See G. John Ikenberry, David A. Lake, Michael Mastanduno, “Introduction: Approaches to Explaining American Foreign Economic Policy” in International Organization Vol 42, no. 1, Winter 1988, pp. 1-14.

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institutions and domestic politics as viable elements in understanding and explaining

decision-making within the global arena as states sought to increase their power while

pursuing the wealth of the nation.

The need to pay attention to the role of domestic and international political

variables must begin with Singer’s analysis of the two methodological approaches to the

study of international politics - the system level paradigm and the national level

paradigm.29 In the former approach, a high degree of universality is assumed,

exemplified by Morgenthau’s traditional realist assumption of “[all] statesmen think and

act in terms of interest defined as power,” thereby producing a “black box” or “billiard

ball” concept of decision makers.30 This generalization which created a separation

between the international and domestic realms for analytical purposes was considered

necessary' to understand fully understand either sphere of activities. The usefulness of this

modus operandi to explain political behavior has since been questioned, especially within

the global context of heightened interdependence where domestic and international

spheres are heavily intertwined and where the actions of nonstate actors and the presence

of civil society in international decisions are prevalent. This dissertation removes this

2 9 See I. David Singer, “The Level-of-Analysis Problem in International Relations” World Politics, Vol 14, No. 1, The International System: Theoretical Essays. (Oct, 1961), pp. 77-92.

30 Ibid, p. 81

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false dichotomy and unites both realms which is necessary for understanding Jamaica’s

decision.

This chapter examines the progression of the literature in international relations

and demonstrates the ways in which the incorporation of both levels has been useful in

explaining the outcome of the JDI project. It begins with a review of the three major

approaches to the study of state decision-making. These approaches are system centered,

state centered and society centered.31 The goal of the chapter is to develop a multi-level

analytic approach which combines the panoramic view of the international system while

focusing on the microscopic view that the domestic decision unit provides in explaining

the domestic outcome. The chapter will also uncover the limitations of analyses that

separate domestic from international levels of analysis and seek an analytic approach that

bridges both levels.

System-CenteredAnalyses

The system centered approach views international politics through the lens of the

international system of states as a whole while treating the nation-state and its policy

31 Ikenberry et al. “Introduction: Approaches to Explaining American Foreign Economic Policy.”

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making process as a black box.32 Here, states’ behaviors are conditioned more by

systemic forces and less by factors internal to the individual states that are the principal

actors in the international system. In explaining state behavior, the systems approach rests

on a greater understanding of the international system and how it works.

The most significant system approaches are realist and neorealist theories. Realist

theory begins with three fundamental assumptions about the international political

system: a) states are the central actors and therefore the primary units of analysis in

international politics, b) in the international arena states are rational and coherent .as they

pursue their interests, which is the national interest, and c) human nature is inherently

conflictual and as a result so is international politics. As a result of these assumptions,

international politics becomes the arena in which states struggle to maximize their power

Charles Kindleberger, The World in Depression (Berkeley: University of California Press, 1973); Stephen Krasner, “State Power and the Structure of International Trade,” World Politics Vol. 28 (April 1976) pp. 317-343; Robert Keohane, “The Theory of Hegemonic Stability and Changes in International Economic Regimes” in Ole Holsti, R. Siverson and A. George eds.. Changes in the International System (Boulder: Westview Press, 1980); Duncan Snidal “Limits of Hegemonic Stability Theory.” International Organization Vol 39 (Autumn 1985) pp. 579-614; Kenneth Waltz, Theories of International Politics (Reading, MA: Addison-Wesley Publishing Company, 1979); Emanuel Wallenstein, The Modern World System Vol. 1,2 (New York: Academic Press, 1974)

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by controlling the military and economic resources necessary to pursue their national

interest.33

Within this perspective, international organizations such as the United Nations

and Intelsat are understood as merely arenas in which states convene to pursue their

national interests, rather than viable institutions capable of acting in their own right to

influence domestic output:

The contributions international functional agencies make to the well-being of members of all nations fade into the background. What stands before the eyes of all are the immense political conflicts that divide the great nations of the earth and threaten the well-being of the loser, if not his very existence.34

The neorealist construct of the international system is one in which two elements

are significant for understanding international politics - the structure of the international

33 E. H.. Carr, The Twenty Years Crisis, 1919-1939: An Introduction to the Study of International Relations (London: Macmillan, 1939); Hans Morgenthau, Politics Among Nations: The Struggle for Power and Peace, 5th edition (New York: Knopf, 1978); Arnold Wolfers, Discord and Collaboration: Essays on International Politics (Baltimore: John Hopkins University Press, 1962); Raymond Aron, Peace and War: A Theory of International Relations (Garden City, New York: Doubleday, 1966), translated by Richard Howard and Annette Baker Fox.

34 Morgenthau, 1960, p. 528.

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system and the interactions that occur between the units or states. Waltz defines the

structure of an anarchical international system as consisting of two elements: a) the

organizing principle which is anarchy, and b) the distribution of power and capabilities.

Understanding the structure of the system is to understand and explain behavior of states

and policy outcomes. While neorealists concurred with realists that the state is the unit of

analysis in international politics, neorealists attributed the behavior of states to their wish

to preserve their respective positions in the international system.3'-’

Structural theories of international relations have also looked to the structure of

the international system for an explanation of the creation, maintenance and demise of an

international order. Structure refers to the organizing principle and the distribution of

power and resources in the system.36 In an anarchic structured international system,

cooperation can best be explained by hegemonic stability theory. The hegemon is that

nation that possesses a preponderance of power and dominance over other states in the

3h Kenneth Waltz, Theories of International Politics (Reading, MA: Addison-Wesley Publishing Company, 1979). 36 Charles P Kindelberger, The World in Depression. 1929-1939 (Berkeley: University of California Press, 1974); Robert Gilpin, U.S. Power and the Multinational Corporation (New York: Basic Books, 1975); Stephen D. Krasner, "State Power and the Structure of International Trade," World Politics 28 (April 1976): 317-347. Duncan Snidal, "Limits of Hegemonic Stability Theory" International Organization. Vol. 39, pp.579-614.

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system.37 Hegemonic stability theory suggests that international cooperation and the

creation of international institutions are best achieved by the hegemon which establishes

the rules that govern the system. A change in the hegemonic power weakens the old order

and leads to the creation of a new international order of cooperation, under a new set of

norms and values.38

Gilpin’s analysis of the international system maintains the traditional realist

beliefs that the state is the primary unit of analysis and that the nature of the international

system is contlictual which he attributes to human nature and its drive for power. He,

however, argues that the international market and the pursuit of wealth and control of

market forces are important national interest objectives of the state. Central to his

definition of the international systemic structure is state power and the formation of

3 7 See Charles Kindelberger, World in Depression (Berkeley: University of California Press, 1973) and "Dominance and Leadership in the International Economy: Exploitation, public Goods, and Free Rides," International Studies Quarterly. 25 (June 1981), pp 242-54. For further discussions of hegemonic stability see Duncan Snidal, "The Limits of Hegemonic Stability Theory", International Organization Vol 39: pp.579-614; Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton: Princeton University Press, 1984) and Keohane "The Theory of Hegemonic Stability and Changes in International Economic Regimes, 1967-1977" in Ole Holsti, ed., Change in the International System (Boulder, Colorado, Westview Press, 1980)pp, 131-162; Robert Gilpin, US Power and the Multinational Corporation (New York: Basic Books, 1975). 38 Robert Gilpin, War and Change in World Politics (New York: Cambridge University Press,1981).

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economic blocs.39 The neorealist position of both Gilpin and Waltz agree that

international organizations such as the United Nations and Intelsat are merely instruments

for the maximization of state interests, without the potential to be viable actors in their

own right in the international system.

Unlike realism and neorealism, liberal and neoliberal theories explain

international outcomes more through the relationships between and among states in the

international community and less in terms of the structure of the international system.

Mitrany’s classic functionalist approach begins with the premise that the authority of

international organizations was based on functional criteria performed within these

international institutions. Mitrany predicted that functional loyalties would eventually

supersede national loyalties, resulting in increasing instances of international corporation

and decreasing incidences of international conflict.40

Keohane’s A fter Hegemony challenge the two fundamental assumptions of

hegemonic stability theory - a) that a strong hegemonic power is necessary for economic

regimes and b) that a hegemon is necessary for the stability of the system. Keohane

3 9 Robert Gilpin. The Political Economy of International Relations (Princeton: Princeton University Press, 2001). 40 David Mitrany, A Working Peace System: An Argument for the Functional Developmental of International Organization (London: National Peace Council, 1946).

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argues three points. First, he argues that a) a hegemon is not a sufficient condition for

strong international regimes; b) that hegemonic cooperation is not the only possible form

of international cooperation and c) that other forms of non-hegemonic cooperation do

occur, such as multilateral institution.41

Keohane and Nye’s neoliberal institutionalism also challenges many of the

assumptions of the realist and neorealist paradigms. First, realists perceive the

international system as the domain of states who are the primary unit of analysis.- Second,

the neoliberal institutionalist position challenges the realist view of the international

system as an inherently conflictual domain. Third, they established the importance of

international cooperation and international institutionalization. They advance the theory

of international cooperation to argue that in a world of complex interdependence, nation

states are not the only actors in the international system. Neither are security issues and

the maximization of national interest the sole nor predominant driving forces behind state

action. States are motivated to pursue other economic and social issues. Other actors

include multinational corporations (MNCs), government bureaucracies, individuals and

groups who may sometimes be at odds with their own official state policies:

The existence of transgovernmental policy networks leads to a different interpretation of one of the standard propositions about international politics — that states act in their own interest. Under complex

41 Robert Keohane, After Hegemony: Cooperation and Discord in the World Political Economy. Princeton: Princeton university Press, 1984), p. 7.

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interdependence this conventional wisdom begs two important questions: which self and which interest? ... The ambiguity of the national interest raises serious problems for the top political leaders of governments. As bureaucrats contact each other directly across national borders (without going through foreign offices), centralized control becomes more difficult. There is less assurance that the state will be united when dealing with foreign governments or that its components will interpret national interests similarly when negotiating with foreigners. The state may prove to be multifaceted, even schizophrenic. National interests will be defined differently on different issues, at different times, and by different governmental units.42

Complex, interdependence consists of three models of interactions: transnational,

transgovernmental and intergovernmental relations.43 Transnational relations are activities

between individuals and groups in one state with individual and groups in another — all

of which occur outside the realm of official state behavior. Rissen Kappen defines

transnational relations as “regular interactions across national borders when at least one

actor is a nonstate agent or does not operate on behalf of a national government or an

4 2

Robert O. Keohane, and Joseph S. Nye, “Complex Interdependence, Transnational Relations, and Realism: Alternative Perspectives on World Politics,” in Charles W. Kegley, Jr. and Eugene R. Wittkopf, The Global Agenda: issues and Perspectives (New York: Random House, 1988), p. 268. 43 Robert O. Keohane, and Joseph S. Nye, eds. Transnational Relations and World Politics (Cambridge: Harvard University Press, 1974).

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international organization.44 Transgovernmental relations are activities between branches

of government that also bypass high-level channels of foreign policy relations.

International intergovernmental relations are interstate activities that involve official

governmental actors.44 These three approaches have traditionally failed to examine the

process through which decisions are made and those actors who influence outcomes,

thereby blurring the distinction between domestic and international politics.

Unlike their place in realism and neorealism, under complex interdependence,

international organizations play a major role in the international system. They exemplify

one mechanism through which international intergovernmental (IGO) relations take place.

They have the capacity to set global agendas and build international coalitions.

While Keohane and Nye’s models of interaction identified the role of nonstate

actors and domestic governmental bodies in international relations, the introduction of

these categories left room for developing a better understanding of the role of private

individuals and nonstate domestic actors and their effects on IGOs. Further developments

are needed for a clearer insight into the interaction between these categories, elucidating

Rissen Kappen. Bringing Transnational Relations Rack in

Ibid.

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the ways in which individuals, national bureaucracies, state representatives and

international regimes interact to affect policy outcomes at all levels.46

The State-Centered Approach

While the system level analysis of international politics excludes domestic

politics by virtue of the “black-box" assumption which allows some generalization about

state behavior, the state-centered approach, by contrast, focuses on the internal dynamics

of states as the unit of analysis. This approach sees the state as “an important intervening

or independent variable between international forces on one hand and foreign policy

made at the domestic level.47 The state is that entity that connects both the international

and domestic arenas 48 Since the state is the institution charged with the responsibility of

conducting the nation’s foreign policy, as the unit of analysis, it is used by the state-

centric approach to connect international outcomes with decisions made within the

context of the domestic political process.

4 6 Andrew P. Cortell and James W. Davis, Jr., “ Do International Institutions Matter? The Domestic Impact of International Rules and Norms." in International Studies Quarterly Vol. 40 No. 4, December 1996, pp. 451-478.

4 7

Ikenberry et al, “Introduction: Approaches to Explaining American Foreign Economic Policy"

4 8 Theda Skocpol. “Bringing the State Back In" in Peter B. Evans, Dietrich Ruescheneyer and Theda Skocpol, Bringing the State Back In (New York: Cambridge University Press. 1985.

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Snyderet al also argue that in order to understand state action, what is needed is

an understanding of the goals, wants and needs of the individuals acting 0 1 1 behalf of the

state. The actors’ perception of the potentially relevant variables within both the domestic

and external setting will have an impact on the choices that are made.49 These variables

may include economic capabilities, military capabilities, other domestic actors,

international alliances, bilateral relations or supranational structures. These factors drive

the “because o f’ and the “in order to” motivations of the significant actors involved in

state decisions.50

There are two dominant views of the role of the state. One, the statist paradigm,

views the state as an actor whose goal it is to maximize the “national interest” while

insulating itself from narrow parochial interests51 Krasner views the state as an

autonomous actor rather than a summation of private interests. The state, Krasner argues,

is a set of roles and institutions, having its own peculiar drives, compulsions and aims

that are separate and distinct from those of societal groups. The goals of the state are

based on its perception of the “national interest.” It is in striving to carry out that

49 Richard C. Snyder, H. W. Bruck and Burton Sapin in James N. Rosenau ed. “The Decision-making Approach to the Study of International Politics” in James N. Rosenau ed. International Politics and Foreign Policy: A Reader in Research and Theory. (New York: The Free Press, 1969), 199-206.

50 Ibid. 51 Stephen D. Krasner, Defending the National Interest: Raw Material Investments and United States Foreign Policy (Princeton: Princeton University Press, 1978).

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perception of the “national interest,” Krasner argues, that the state encounters resistance

from both domestic and international societal groups.

Critics of this perspective reject the notion of the “national interest” on several

grounds. First, it presumes an identifiable policy alternative that is distinguishable from

other alternatives one that assumes an objective reality outside of the realm of politics,

devoid of influence by private interests.52 Others argue that the role of the state is to

advance the interests of the capitalist class and the needs of the capitalist system as a

whole.'’3 Yet others argue that the state is not an autonomous actor but depends on special

interests whose interests they articulate. State policy is seen as the result of societal

pressures, “the resultant of effective access by various interests.”54 Still other critics also

argue that the capitalist system is symbolic of ties between the capitalist class which

controls the state and public officials.55

5 2 See Joseph Frankel, National Interest (New York: Praeger Publishers, 1970). See also Arnold Wolfers, Discord and Collaboration pp. 147-166. 53 Nicos Poulantzas, Classes in Contemporary Capitalism ; translated from the French by David Fern bach. Imprint London : Verso, 1979.

54 David Truman. The Governmental Process, p. 507

Ralph Miliband, The State in Capitalist Society (London, Weidenfeld and Nicolson, 1969).

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The state-centric approach is one that engages in the structural analysis of the

state. Katzenstein notes that the state’s foreign policy is determined by a range of factors

that include the level of autonomy from societal groups, the relative strength of the state

and the degree of fragmentation along bureaucratic lines.56 He argues that while the

liberal, the marxist and the realist approaches identify different external limitations on

domestic policy outcomes, the “critical” intervening variable between international

interdependence and political strategies is the domestic structure of the nation-state and

the ability of state officials to realize state objectives/'’7 The domestic structure is defined

as the coalition between business, the state and the policy networks that link the public

and private sectors.

5 6 Ikenberry et a!. See also Peter J. Katzenstein, ’’Conclusion: Domestic Structures and Strategies of Foreign Economic Policy” in Katzenstein ed., Between Power and Plenty (Madison: University of Wisconsin Press, 1978); Katzenstein, Small States in World Markets (Ithaca, NY: Cornell University Press, 1986).

Peter I. Katzenstein, ed., Between Power and Plenty: Foreign Economic Policies of Advanced Industrial States. (Madison, Wisconsin: The University of Wisconsin Press, 1978).

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One contribution to the state-centric approach is Graham’s bureaucratic politics

model.''8 This model holds that a state’s domestic and foreign policies are the outcome of

a series of rivalries, bargains, and compromises among different bureaucratic entities at

the domestic level. The decision-making process is where state policies are formulated

after much compromise between competing state bureaucracies with unequal levels of

power, authority and resources.

Allison argues that state decisions and actions often involve bureaucracies which

hold different perspectives, different goals and different objectives. Often these goals and

objectives are parochial, contradictory and conflictuai. State decisions are the result of

compromise, bargains and coalition-building among bureaucracies which seek to promote

their own power, interests and goals and are affected by the sheer power and/or

bargaining skills of the actors.'19

58 Graham T. Allison, Essence of Decision: Explaining the Cuban Missile Crisis (Boston: Little Brown and Company, 1971); Morton H. Halpern, Bureaucratic Politics and Foreign Policy (Washington D.C.: The Brookings Institute, 1974); and Graham T. Allison and Morton FI. Halpern "Bureaucratic Politics: A Paradigm and Some Policy Implications" World Politics, Vol '24 (Spring 1972).

1,9 Graham Allison, op. cit

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Both domestic and foreign policy decision-makers participate in bargaining games

with each other. The players from different departments bring to the proverbial table

different perceptions, different motivations and a variety of personal objectives. Decision

makers’ parochial priorities and perceptions, coupled with their different stands, goals,

interests and stakes, all affect the final outcome of state policy.60 The dominant actor in

the bureaucratic conflict is the one who would determine the outcome of state policy

because “what a government does in any particular instance can be understood largely as

a result of bargaining among players positioned hierarchically in the government.”61

Figure 2-1: Bureaucratic Politics Model National Government

A B z r Players in positions (A - E) y y Goals, interests, stakes, and stands (r - z)

Power c D E Action - channels n i z X y y

Source: Allison, Essence of Decision, p. 256

60 Allison Graham, Essence of Decision: Explaining the Cuban Missile Crisis (Boston: Little, Brown and Company, 1971. 6! John A. Vascjuez, Classics of International Relations (Englewood Cliffs: Prentice Hall, 1990), p. 159.

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The bureaucratic politics model stressed the major role played by mostly state but

also non-state actors at the domestic level. The weakness of this approach, however, is

that it understates the importance of decisions made in the transgovernmental and

transnational contexts. It also understates the significant role played by nonstate actors,

such as and international institutions and multinational corporations, both nationally and

internationally, in domestic decision-making.

In their analysis of bureaucratic politics, Laver and Schepsle make the distinction

between cabinet ministers who formulate policies that affect domestic output and civil

service bureaucrats who actually implement those policies. They argue that effective

power to both make and implement public policy lies more in the civil service than within

the cabinet. The reason for its effective power, they argue, is the fact that cabinet

ministers are generally politicians who come and go. Since career civil servants are there

to stay, they are therefore in a “very strong position to effectively determine government

policy outputs.”62 They note that the preferences of civil servants and bureaucrats may

differ from those of elected politicians.63 Garrett and Lange argue that bureaucrats will

6 2 Michael Laver and Kenneth A. Schepsle. Cabinet Ministers and Parliamentary Government (New York: Cambridge University Press, 1994), p 6.

6 3 Geoffrey Garrett and Peter Lange, “Internationalization, Institutions, and Political Change” in Keohane and Milner ed., Internationalization and Domestic Politics (New York: Cambridge University Press, 1996).

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not change the way they make and implement policy in lockstep with the preferences of

government or societal actors. The more authority over policy rests in the hands of

independent bureaucratic agencies, they argue, the less policy change should be

associated with a given change in the constellation of preferences in the private sphere.64

The bureaucratic politics approach is one that opens the “black box,” providing

more insight into the decision-making process that impacts interstate relations. Critics of

this model have argued that this approach is problematic in its inability to identify the

importance of interests and motivations of individuals and demonstrate their impact on

policy output.66 The model is also incapable of demonstrating the ways in which societal

actors affect policy outcomes.

Putnam argues that the limitation of the bureaucratic politics model is that it is

“state-centric.” It is therefore insufficient to grasp the complexities Involved in the

domestic-international mix. Instead of the state-centric approach, he recommends a

society centered approach that incorporates politics, parties, social classes, interest

64 Ibid.

65 I.M. Destler, “Organization and Bureaucratic Politics” in Presidents, Bureaucrats and Foreign Policy (Princeton: Princeton University Press, 1974), pp. 52-81.

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groups, legislators, and even public opinion and elections, not simply executive officials

and institutional arrangements.66

The Society-centered Approach

The society-centered approach looks at the role of societal actors, particularly the

dominant groups or social classes and the manner in which they impact domestic and

foreign policy. State officials and institutional processes are not the only significant

factors in the policymaking outcome.67 Migdal acknowledges different levels of

disaggregation where policy is made, ranging from the commanding heights of agencies’

central offices to dispersed field offices to the trenches. He disaggregates the state rather

66 Robert D. Putnam, "Diplomacy and Domestic Politics: The Logic of Two-Level Games" International Organization 42 (Summer 1988) p. 442.

6 7 Peter Gourevitch, Politics in Hard Times (Ithaca: Cornell University Press, 1986); David Truman, The Government Process: Political Interests and Public Opinion (New York: Knopf, 1951); Robert Dahl, Who Governs? (New Haven: Yale University Press. 1963); Theodore Lowi, The End of Liberalism (New York: Norton, 1969); Charles Lindblom, Politics and Markets (New York: Basic Books, 1977).

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than viewing the state as a monolith.68 Vitalis also identifies divisions within states,

which he attributes to divided business interests.69

Migdal, Kohli and Shue note that boundaries do exist between state and societal

actors.70 Kohli and Shue, however, note that the boundaries between both state and

society are blurred. They have the effect of mutually transforming the nature of state-

society interactions.71 Markovitz acknowledges that boundaries between the state and

civil society is in fact blurred. However, he argues that the state and civil society are more

than intertwined, for the elements of civil society are not merely affected by the state, but

68 Joel S. Migdal, “The State in Society: an approach to Struggles for Dominion” in Joel S. Migdal, Atul Kohli and Vivienne Shue,ed., State Power and Social Forces: Domination and Transformation in the Third World (New York: Cambridge University Press, 1974).

6 9 Robert Vitalis, “Business Conflict, Collaboration, and Privilege in inter-war Egypt” in Joel S. Migdal, Atul Kohli and Vivienne Shue,ed., State Power and Social Forces: Domination and Transformation in the Third World (New York: Cambridge University Press, 1974).

7 0 Joel S. Migdal, Atul Kohli and Vivienne Shue, State Power and Social Forces : Domination and Transformation in the Third World. (New York : Cambridge University Press, 1994).

71 Atul Kohli and Vivienne Shue, “State Power and Social Forces: on Political Contention and Accommodation in the Third World,” in Joel S. Migdal, Atul Kohli and Vivienne Shue,ed., State Power and Social Forces: Domination and Transformation in the Third World.

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are seated in the state.72 He notes that the connection between state and society cannot

really be understood if we persist in seeing the state and civil society as separate,

balancing entities.73

In the African political economy, Markovitz notes that the state and civil society

are intertwined into “networks and webs of relationships,” that are “not of individuals,

but of families” which are “repeated and systematic encounters over time.”74 These occur

when civilians from organizations or interests in civil society are loaned or seconded to the institutions of government that are responsible for the oversight, management or conduct of those organizations or interests; when the structures and organizations of civil society are created, enhanced, supported and promoted by structures, organizations and officials of the state, or the reverse.75

Irving Leonard Markovitz, “Uncivil Society, Capitalism and the State in Africa,” in Nelson Kasfir, ed. Civil Society and Democracy in Africa: Critical Perspectives (London: Frank Cass, 1998)p. 21.

73 Ibid, p. 22.

74 Ibid. p. 24.

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Their actions occur within an international and national framework that supports and

limits the liberty of interests within civil society.76

Markovitz’s conception of the “organizational bourgeoisie” is also helpful in the

analysis of state-society relations. Markovitz defines the “organizational bourgeoisie” as

“a combined ruling group consisting of the top political leaders and bureaucrats, the

traditional rulers and their descendants, the leading members of the liberal professions,

the rising business bourgeoisie, and top members of the military and police forces.77 The

“organizational bourgeoisie”is distinct from both the classical and the state bourgeoisie.

Its distinction lies in the fact that the business bourgeoisie does not merely use states as

instruments or as its allies but it occupies state offices, wielding power and controlling

the terms of economic activities.78 The organizational bourgeoisie not only managed, they

exploited as well.79

7 6 Irving Leonard Markovitz, “Civil Society, Pluralism, Goldilocks, and Other Fairy Tales in Africa” in George Bond and Nigel Gibson, ed. Contested Terrains and Constructed Categories: Contemporary Africa in Focus (Boulder, CO: Westview Press, 2000).

7 7 Irving Leonard Markovitz, ed. Studies in Power and class in Africa (New York: Oxford University Press, 1987) p.8.

78 Ibid, p. 11.

79 Ibid, p. 8.

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The power of this class, both cause and consequence of occupying positions of state authority, is such that the state serves its ends to the extent that the two spheres of the public and the private ... have if anything become, in certain ways, at all levels more tightly bound together.80

Krasner sees the state as independent from societal forces. He notes that the

society-in-the-state position as articulated by Markovitz, fails to explain why some

governments have been successful in pushing forth positions that were not supported by

dominant groups. He also notes that the society-in-the-state position cannot explain why

some governments have prevailed in the presence of conflicts between the state and

private corporations.81

Nordlinger argues that the actions and inactions of the democratic state are

determined by the contours of civil society, in conjunction with the distribution of

political resources, and the policy preferences of those societal groups that control the

greatest amount of societal resources.82 However, Nordlinger’s position is distinctly

different from the latter position when he argues that he sees the state as :

80 Ibid, p. 10.

81 Krasner, Defending the National Interest 82 Eric A. Nordlinger, On the Autonomy of the Democratic State (Cambridge, MA: Harvard University Press, 1981), p. vii.

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It is most implausible that the democratic state — the elected and appointed officials who populate this large, weighty, resource-laden, highly prized ensemble of offices — is consistently unwilling or unable to translate its preferences into public policy when they diverge from those held by the politically weightiest societal groups.83

Unlike the Marxist, pluralist and social corporatist perspectives which view the

state as “malleable” in the hands of the most powerful group, Nordlinger asserts that

when state and society preferences diverge, the society centered model denies, ignores or

downplays possibilities of public officials acting on their own preferences and denies

states turning their preferences into authoritative action when opposed by societal actors

who control the weightiest political resources.84 He concludes that when state and societal

preferences diverge, it is the preferences of public officials that are translated into

authoritative action.83 In addition, Nordlinger’s analysis presumes the existence of

monolithic state preferences rather than a variety of conflicting preferences among

competing bureaucracies that often exist around issues before the state.

Ibid, p. 3.

Ibid, p.7.

Ibid.

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Systems Analysis and Domestic Politics: A Combined Approach

Others have acknowledged that both the systemic and domestic perspectives fail

in their respective individual attempts to fully explicate the complexities of decisions

within the international political economy. Since a knowledge of each level is important

in the understanding of domestic policy processes, and since each approach is insufficient

without the other, a more fruitful endeavor would be a combined approach — one that

looks at the way in which both domestic and international factors affects domestic

political output. Keohane echoes this sentiment and argues that

[A]n international-level analysis ... is neither an alternative to studying domestic politics, nor a mere supplement to it .... On the contrary, it is a precondition for effective comparative analysis. Without a conception of the common external problems, pressures and challenges ...we lack an analytic basis for identifying the role played by domestic interests and pressures .... Understanding the constraints imposed by the world political economy allows us to distinguish the effects of common international forces from those of distinctive national ones.86

Keohane's liberal international relations approach begins with the assumption that

state behavior is shaped by both domestic influences and the transnational society in

86 Robert Keohane, ‘The World Political Economy and the Crisis of Embedded Liberalism'’ in John A. Goldthorpe ed., Order and Conflict in Contemporary Capitalism (Oxford: Clarendon Press, 1984), p. 16.

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which it is embedded.87 On the one hand societal forces influence the way states behave

by shaping state preferences defined as the fundamental social purposes underlying the

strategic calculations of governments.88 The fundamental actors within domestic and

transnational interaction are individuals and private groups whose endeavor is to promote

their interests. The state represents a subset of domestic society, the interests of which

determine state preferences and which forms the basis of state action in world politics.

The new liberal international relations theory, therefore, requires relaxing the

fundamental systemic assumption of the state as a unitary actor, instead assuming a

polyarchic structure of the state.89

Polyarchy, Milner argues, assumes that different groups within the state have

different preferences and goals.90 A polyarchic analysis therefore allows a more detailed

look at the domestic political struggle that ensues among the domestic actors. It fosters

the identification of different goals, objectives, motivations, and perspectives within both

the state, as well as those external to it.

87 Andrew Moravcsik, “Taking Preferences Seriously: A Liberal Theory of International Relations” in International Organization Vol 54, no. 4, Autumn 1997, pp. 513-53.

88 Ibid, p.513. 89 Helen V. Milner, Interests. Institutions and Information: Domestic Politics and International Relations (Princeton: Princeton University Press, 1997) p. 253.

90 ibid, p233.

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This combined approach is useful for two reasons. First, Milner and Keohane note

that the context within which national decisions are made is a global context. They argue

that we can no longer understand domestic politics without a realization of the linkages

between national economies and the global economy. Second, forces at one level impact

actions at the next. The world economy alters domestic politics by creating new policy

preferences and coalitions.91 It also affects political institutions since when actors’

preferences change and new policies are pursued, institutions also change.92 Policy

preferences of actors within countries fluctuate based on their global economic interests.93

Preferences also change as a result of political pressures from powerful actors within the

international system such as United States and the International Monetary Fund.

Milner argues that while the international system impacts domestic politics,

domestic politics also has the capacity to impact the international system. Domestic

political institutions can mitigate the effects of internationalization and offset changes

91 Ronold Rogowski, Commerce and Coalition: How Trade Affects Domestic Political Alignments (Princeton: Princeton University Press, 1.989).

9 2 Keohane and Milner, p. 244. See also Stephan Haggard and Sylvia Maxfield, “The Political Economy of Financial Internationalization in the Developing World” in Robert O. Keohane and Helen V. Milner, ed., Internationalization and Domestic Politics (New York: Cambridge University Press, 1996).

9 3 Robert O. Keohane and Helen V. Milner, “Internationalization and Domestic Politics: An Introduction” in Robert O. Keohane and Helen V. Milner, ed., Internationalization and Domestic Politics .

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. from occurring even in the face of systemic pressures.94 Milner notes that domestic

politics and international relations are intricately bound because a nation’s international

position affects its internal politics and economics. Conversely, a nation’s domestic

situation impacts its foreign relations. To overlook domestic politics by assuming the

state is unitary actor as realism does, Milner argues, overlooks key elements in explaining

state behavior and misinforms our analysis.95

The course of action for international political scholars is, therefore, to develop a

theoretical position that successfully “acknowledges and accounts for the power of agents

[at the domestic level] and recognizes the causal relevance of ‘structural factors.’”96

Dessler argues that “[s]ince social action is a result of both structural and agential forces,

a strict structural or agential e\pl ination of action will necessarily be incomplete. One

alone won't do.”97

The research agenda of the past decade has pursued this new course. Milner’s

analysis of international trade policies looked at the critical role of domestic interest

94 p. 21.

95 Helen V. Milner, Interest. Institutions and Information: Domestic Politics and International Relations (Princeton: Princeton University Press, 1997).

9 6 David Dessler. “What’s at Stake in the Agent-Structure Debate” in International Organization no. 43 (1989) pp. 441-73.

97 Ibid, p. 444.

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groups, national governments and foreign governments in the making of trade policies.

She argued that the distribution of power among the actors impacts the economic policy

outcome and the distribution of wealth.98 Frieden also identified the role of the domestic

system in the analysis of international political economy, arguing that globalization -

defined in terms of a global system of highly-integrated financial markets with a high

level of international capital mobility - has a clear impact on the domestic environment.

He demonstrated that globalization had a different impact on local interests. Local

interests, he noted, in turn applied pressure on the domestic political system to ensure the

implementation of policies in their best interests.99

Mastanduno et al., using a realist perspective, also incorporated a multilevel

analysis. The authors argue that one consequence of interdependence is that international

developments constrain the ability of governments to pursue domestic politics effectively.

The success of domestic politics depends on the ability of state officials to secure

Helen V. Milner, Resisting Protectionism: Global Industries and the Politics of International Trade (Princeton: Princeton University Press: 1988), p. 3

99 Jeffrey A. Frieden, “Invested Interests: the Politics of National Economic Policies in a World of Global Finance,” International Organization. Autumn 1991, Vol 45, #4 pp.425-452.

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accommodations in the international arena. Therefore, in order to pursue their

international goals, states also needed success in the pursuit of domestic goals.100

Weiss also argues that the state’s ability to respond to international pressures,

which she identifies as its transformative capacity, is a result of the state’s priorities, its

domestic linkages and the nation’s key economic actors.101 Katzenstein noted that state

capacity depends on the ways in which societal groups are organized. His foreign

economic policy model is one that includes political and economic forces operating, both

at home and abroad, that have an influence on state bureaucracy.102 Evans argues that

state capacity is based on a set of institutions that insulate the economic bureaucracy from

special interests at the same time having established channels of cooperative links

between state bureaucrats and organized business.103 This state of “governed

interdependence” is one in which both spheres maintain their autonomy while

cooperating to advance the interests of each.

100 Michael Mastanduno, David A. Lake and G. John Ikenberry, “Toward a Realist Theory of State Action” International Studies Quarterly, Vol. 33, Dec 1989, pp 457-474. 101 Linda Weiss, The Myth of the Powerless State.(Ithaca, NY: Cornell University Press, 1998).

102 See Katzenstein, Between Power and Plenty

103 Peter B. Evans, Embedded Autonomy: States and Industrial Transformation (Princeton: Princeton University Press, 1995)

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While Evans sees a separation between the state and societal actors, Milner, on

the other hand conflates the two spheres. Her model of state-society relations is one that

identifies the interaction of public institutions, political actors and private interests as they

converge to determine policy. The author notes that domestic politics arises due to the

fact that the state is not a unitary actor. It consists of different societal and political actors

with different policy preferences. Economic actors can be identified by their common

interest which is the maximization of income and profits whereas the interest of political

actors is to retain political office. While interests remain constant among each group,

policy preference does not. Policy preference is the means through which actors interests

are realized. Policy outcome is the result of competing policy preferences.

Policy outcome, Milner argues, is determined by the structure of domestic

preferences which varies with issue area. Outcome is also based on the ranking of

preferences of actors based on the relative power of internal actors. The most powerful

actors are the political executive (president or prime minister, the legislature and interest

groups.104 Interest groups are the primary source of information and their access to

information affects the power of the group. Information is also central to the outcome in

this model. Milner’s analysis generates the following hypotheses from her model:

104 Helen V. Milner, Interest, Institutions and Information: Domestic Politics and International Relations, p. 16.

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a) When the most dovish domestic actor (closest in preference to foreign

country) holds greater internal decision-making power in domestic politics, the

outcome is positive, that is the absence of armed conflict.

b) When the more hawkish actor is most powerful in the domestic decision

making unit, the policy outcome is negative, or armed international conflict

c) When the executive and the legislature have policy preferences that are far

apart, the government is far more divided and cooperation is less likely.Kb

Milner’s analysis introduces another key element in the explanation of policy

outcomes - the notion of the “divided government.”106 The divided government is the

situation in which there is a lack of consensus between or among the primary state

decision-making bureaucracies. This may occur between the executive and legislature

branches of government or among cabinet members themselves within the executive

branch. The author argues that when the government is divided, successful policy

outcomes are the result of factors other than the structure of preferences. In a divided

government, the author notes, policy outcome is more the result of party dynamics and

coalition formation rather than the ranking of preferences. Divided governments occur in

both presidential and parliamentary systems.

Ibid, Chapter 3.

Ibid, p. 38.

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Interest groups have a significant impact on divided governments, Milner argues,

as a result of the dual role they play. First, they act as information providers to policy

makers, directly helping to shape their preferences. Second, by providing financial

support in the form of campaign contributions and by their capacity to mobilizing votes,

they serve as pressure groups, whose goal it is to directly affect the policy preferences of

decision-makers. The preferences of interest groups, the author notes, depend on the

distributional consequences of the policy under consideration.107

Milner’s analysis of the divided government clearly dispels the commonly-held

assumption of the state as a unitary actor.108 It elucidates the many of the complexities

that impinge on policy outcomes. However, what is missing from the analysis is a model

which better informs us as to why different structures of preferences emerge and vary

from issue to issue. The model needs a clearer elucidation of domestic political processes.

Such a model helps us to understand the domestic-international link, as well as which sets

of actors’ preferences and institutions at each level can be expected in the decision

making process.

107 Ibid, p. 60. 108 See J. David Singer, “The Level-of-Analysis Problem in International Relations” World Politics, Vol 14, No. 1, The International System: Theoretical Essays. (Oct, 1961), pp. 77-92.

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Putnam’s “two-level games” is another model that establishes the theoretical link

between international politics and domestic outcomes. The author argues that

international negotiations in which the statesman is located at the point where

international and domestic politics intersect.109 The statesman is strategically located

between two “tables,” one representing domestic politics and the other international

negotiations. Each context is equally dependent on the outcome of the other.110

At the national level, domestic interest groups compete against each other to have

their interests represented in international negotiations as state policy. At the international

level states try to gain the maximum benefits that are in line with domestic interests.

Decisions that may be rational at one level may be totally irrational at the next. Pressures

from local interests that are not in harmony with the interests of competing states are

likely to obstruct international cooperation.111

109 Robert D. Putnam, "Diplomacy and Domestic Politics".

10 Ibid.

Putnam and Bayne, in Peter B. Evans, Harold K. Jacobson and Robert D. Putnam. Double-Edged Diplomacy: International Bargaining and Domestic Politics.(Berkeley: University of California Press, 1993). pp. 10-12. See also Evans et al Double-Edged Diplomacy.

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Knopf argues that Putnam’s two-level-game approach has three shortcomings.

First, it fails to incorporate the complexities of domestic-international interaction.112

Second, it overlooks yet a third level of interaction, namely institutional alliances

between groups of states. This third level is especially relevant in understanding the role

of military alliances in international security negotiations. Third, Putnam’s approach fails

to draw out the role that domestic groups play in initiating international negotiations.

Knopf introduces a “three-three approach” to understanding international regimes

consisting of three levels of analysis and three types of domestic interaction. The three

levels of analysis are international, national, and the group level. The three types of

domestic-international interactions are: a) trans-governmental interactions where internal

divisions result in state bureaucracies from one nation connect across borders with the

like-minded faction in the next b) transnational interactions where different societal

groups from one nation connect across borders with groups in the next as in international

non-governmental organizational relationships and c) cross-level interactions where

leaders from one nation connect with societal groups of a next. Examples of each, Knopf

argues, are apparent in the US-Soviet negotiations on intermediate-range nuclear forces in

the 1980s.

] 12 Jeffrey W. Knopf "Beyond Two-Level Games: Domestic-International Interaction in the Intermediate-range Nuclear Force (INF) Negotiations" International Organization, Vol 47, No. 4 Autumn 1993.

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Knopfs work incorporates international institutions, alliances, state and non state

actors in the analysis of international negotiations. Knopfs analysis, however, contains

one weakness. In his explanation of the way international regimes and domestic politics

impinge on domestic output, Knopfs model is unable to explain why the specific

domestic-international interaction emerged and why some patterns of domestic-

international interactions are more likely to emerge in some issues and not in others.

A successful model needs to explain why we are more likely to see a greater level

of transgovernmental interactions over transnational interactions in some issues more

than in others. It ought also to inform us of when we can expect to see a greater degree of

cross-level interactions in some issues and not in others. As with Putnam, the focus on the

negotiator as the unit of analysis is insufficient to give us the depth of details required to

address the broader issues of transnational and transgovernmental interactions.

Nevertheless, the strength of Knopfs analysis is its inclusion of both domestic and

international interactions as they impinge on international institutions, a move which

many have argued has been seriously lacking in the international regimes literature.

Theories of International Regimes

The study of international regimes had its beginnings in discourse on the role of

the hegemon in maintaining international corporation and stability. Keohane and Nye’s

neoliberal institutionalist position argues that while the hegemon may facilitate

international cooperation, it is neither a necessary nor a sufficient condition for fostering

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international cooperation. Instead, they argue that international cooperation is possible in

the absence of a hegemon because shared interests can result in the creation of

international regimes.113 Strong international regimes, especially economic ones, depend

on a hegemonic power for sustenance and stability. Similarly, the demise of an

international regime could have been attributed to the decline of the system’s hegemon.114

An international regime is defined as embodying “sets of implicit or explicit

principles, norms, rules and decision-making procedures around which actors’

expectations converge in a given area of international relations.”11'’ Haggard and

Simmons identify four categories that have traditionally defined the study of international

regimes. These categories are structural, functional, game-theoretical and cognitive."6

113 Robert O Keohane and Joseph S. Nye. Power and Interdependence. Glenview, 111: Scott, Fores man and Co. 1989, pp 39-40, and Stephen D. Krasner, International Regimes (Ithaca: Cornell University Press 1983). p. 50.

115 Stephen D. Krasner, “Structural Causes and Regime Consequences: Regimes as Intervening Variables,” International Regimes, (Ithaca: Cornell University Press, 1983), p. 2. See also Keohane, After Hegemony: Cooperation and Discord in the World Political Economy (Princeton: Princeton University Press, 1984), p. 57.

116 Haggard and Simmons, pp. 491-517.

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Three of them- structural, functional, and game-theoretical - approach their analysis from

the level of the international system.117

The structural approach, where international regimes are viewed through the

prisms of the realist perspective, explains international regimes largely through the role of

the powerful states. The functional approach to international regimes explains the

presence of international regimes by the extent to which they provide benefits for their

member nations and satisfy the needs of the international community. Benefits include

reduction of uncertainty, reduction of costs (information costs and transaction costs), and

correction of market imperfections.118

While changes in the world political economy affect the regime’s ability to

continue to provide benefits to its members, the expected result would be changes in the

international regime that would seek to address emerging needs. Keohane and Nye point

to the examples of technological changes and changes in the world political economy

117 Stephen Haggard and Beth A. Simmons, "Theories of International Regimes", International Organization, Vol. 41, Summer 1987, pp. 491-517.

118 Robert O. Keohane, "The Demand for International Regimes" International Organization. Vol36, no 2 pp. 141-171, 1982. See also Ernst Haas, Beyond the Nation- State: Functionalism and International Cooperation (Stanford University Press, 1964); James P. Sewell, Functionalism and World Politics (Princeton University Press, 1960); Both Haas and Sewell’s conception of functionalism provided the foundations for later functionalist approaches of international regimes.

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which make existing international regimes obsolete.119 New international regimes would

emerge to address new functions and new needs as a result of changes in the system.120

Nevertheless, in spite of major technological changes that create new needs and

that require new norms, older international regimes often fail to address the new reality

even after the conditions from which they emerged have vanished. Once institutions and

their norms are established, the authors argue, they are quite difficult to eliminate even

when they become obsolete. When significant international economic changes fail to

produce regime change, several underlying factors may be at play. Keohane and Nye

argue that when important economic changes take place and regime changes fail to occur,

bureaucratic inertia often serves as an obstacle to change.121 Elsewhere, Keohane also

argues that regimes continue to exist despite the disappearance of those conditions under

which they were created because the regimes perform functions that are important to the

J 19 Robert O. Keohane and Stanley Hoffmann "Institutional Change in Europe in the 1980’s in Keohane and Hoffmann, ed, The New European Community: Decision-making and Institutional Change (Boulder, Colorado: Westview Press, 1991)and Robert O. Keohane and Joseph S. Nye, Power and Interdependence, 2nd ed.(Glenview, 111.: Scott, Foreman and Co., 1989) pp. 39-40. . 120 Keohane and Nye, Power And Interdependence. The authors refer to this phenomenon as the economic process model.

121 Keohane and Nye, Power And Interdependence, p 55.

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states they serve, one of which is the arena for cooperation in which states interests are

harmonized.122

The third approach, the game theoretical approach, looks at international regimes

as games in which states have clearly defined goals and objectives. States, diligently

pursuing power and wealth under conditions of anarchy, are rational utility maximizers,

pursuing their national interests.123 In so doing conflict of interest situations arise among

players who interact according to predetermined rules.124 Each actor faces its own sets of

benefits and stakes which determine its level of participation. Regime change occurs

when the benefits and stakes are no longer the same as different sets of rewards and

payoffs emerge among actors.

While the game theory approach provides insight into the range of options that

elicit certain responses from states, the approach has failed to incorporate non-systemic

122 See Keohane, After Hegemony

123 R. Harrison Wagner, "The Theory of Games and the Problem of International Cooperation, "American Political Science Review 70 (June 1983), pp. 330-46; Robert Axelrod, The Evolution of Cooperation New York: Basic Books, 1984) and "The Emergence of Cooperation among Egoists", American Political Science Review 75 (June 1981) 306-318; George Downs and David Rocke, Tacit Bargaining. Arms races and Arms Control, (Ann Arbor: University of Michigan Press, 1990); Andrew Kydd and Duncan Snidal, "Progress in Game-Theoretical Analysis of International Regime" in Volker Rittberger, ed. Regime Theory and International Relations (Oxford: Clarendon Press, 1993)."

124 James T. Tedeschi, Barry R. Schlenker and Thomas U. Bonoma, Conflict. Power and Games (Chicago: Aldine Publishing Co., 1973).

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factors such as domestic political factors. It also has not helped us in understanding of

how regimes’ benefits and stakes are established and changed. For that we need to

examine the domestic context out of which regime actors emerge.

The fourth approach to the analysis of international regimes, the cognitive

approach, begins with the assumption that international regimes are made up of humans

who selectively respond to their environment. Chister Jonsson argues that the definition

of international regimes — “Principles, norms, rules and decision-making procedures

around which actors’ expectations converge(Jonsson’s emphasis) in a given issue area”

— seems to set the stage for a strong cognitive thrust in the analysis of international

regimes. This definition, therefore, places us in the cognitive world of the decision

makers.125

This approach looks at individuals in the context of international institutions

responding to their environments, on behalf of their states.126 The key elements that

condition international cooperation, according to the cognitive perspective, are the shared

ideology and world view of the actors, how they define their reality and interests and the

125 Chister Jonsson, "Cognitive Factors in Exploring Regime Dynamics", in Volker Rittberger, ed. Regime Theory and International Relations (Oxford: Clarendon Press, 1983), pp. 202-203.

126 Robert Jervis, Perception and Misperception in International Politics (Princeton: Princeton University Press, 1976). Jervis looks at the cognitive process and its impact on decision-making in the international arena.

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limitations imposed on their rationality.127 These factors lead to the creation and

maintenance of international regimes that facilitate cooperation.128 Jervis also adds that a

decision-maker’s beliefs about politics, the images he holds of key players, and instances

of misperception will play a key role in international interaction.129

The cognitive approach is significantly different from other approaches to the

study of international regimes in that it demonstrates the importance of the roles played

by ideology, belief systems, information and learning of individuals as they define the

interests of actors. The approach attributes changes in these factors to changes in

international regimes130 Nye has shown that regime changes have resulted from changes

in the learning process. Regimes, he states, change in response to new information,

therefore learning is the principal factor that accounts for regime change.131 The learning

127 Ernst Haas, "Words Can Hurt You: Or Who Said What to Whom About Regimes" in Stephen D. Krasner, International Regimes (Ithaca: Cornell University Press 1983) p. 57; Haggard and Simmons, pp. 509-511.

128 Ernst Haas, "Words can Hurt You: Or Who Said What to Whom About Regimes: in Stephen Krasner, International Regimes (Ithaca: Cornell University Press, 1983) p. 57; haggard and Simmons, pp. 509-511.

129 Jervis, Perception and Misperception in International Politics.

130 Haggard and Simmons, pp 509-511. 131 Joseph S. Nye Jr. "Nuclear Learning and United States-Soviet Security Regimes", International Organization. Vol 41 no. 3 1987 pp. 371-402.

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process is where actors acquire and use new knowledge for the purpose of adopting

“different, and more effective, means to attain one’s end.”132

In their critique of the literature on international regimes, Haggard and Simmons

noted that the literature has been written largely from a systemic level of analysis, to the

exclusion of domestic politics and nonstate actors.1’3 As a result the structural, functional

and game theory approaches have fallen short for several reasons in explaining

international outcomes. First, they assume the state as a rational and unitary actor. Their

analyses therefore fail to inform us of the way in which domestic politics and the

domestic policy process impact international outcomes. The authors argue that what has

been missing from the literature on international regimes is a discussion of the domestic

political determinants of international cooperation and how international regimes

influence policy choices at the national level. They advocate an approach to international

regime analysis that not only looks at the interaction among states, but that also looks at

the interaction of nonstate actors at the domestic level, international level and between

cross-national coal itions.134

Ll‘ Joseph Nye "Nuclear Learning" International Organization Vol 41, 1987 p. 378.

133 Ibid.

iM Ibid.

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Haas cites yet another factor that affects regime change — the epistemic

community.135 He credits the epistemic community as a source of new knowledge and

notes that it promotes learning within regimes.136 The epistemic community is the

community of intellectuals from the realm of academia or government or other sectors of

knowledge in society which provides the intellectual justification for a particular

outcome. It is “... a professional group that believes in the same cause-and-effect

relationships, truth tests to assess them, and shares common values, ... shares a common

vocabulary, common political objectives, a common network in which findings are

exchanged and shared concerns are formulated, common world view and concerns about

the same subject matter.”137

As the source of ideas and knowledge which sometimes ran counter to the

established mode of thinking of those in power, epistemic communities provide

legitimacy for emerging social groups that are in opposition to the dominant groups and

their ideas. As a result they greatly inform us on the genesis of regime change. The goal

135 Peter M. Haas. Saving the Mediterranean: The Politics of International Cooperation (New York: Columbia University Press, 1990).

136 Peter M. Haas "Do Regimes Matter?: Epistemic Communities and Mediterranean Pollution Control" in International Organization, Vol 43, No. 3, Summer 1989, pp 377- 404: Peter Haas, Saving the Mediterranean: The Politics of International Environmental Cooperation (New York: Columbia University Press, 1990); Peter Haas, "Epistemic Communities and International Policy Coordination" in International Organization. Vol 46 No. 1, Winter 1992, pp 1-36;

137 Haas, Saving the Mediterranean, 55.

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of emerging social groups is to implement their new policies and objectives. Policy

makers with different points of view often refer to the epistemic community for

information and policy advice. It is the epistemic community that validates the new

information and the changes in belief system, ideology, and ultimately the changes in the

international regime.

Haufler attempts to broaden the scope of systemic analysis by including the role of

nonstate actors in international regimes. The author argues that states sometimes build on

a foundation of norms and practices that have been laid down by nonstate actors. States

may use nonstate actors to implement some of the functions of the regime, nonstate actors

may also create their own regimes or they may at times play an equal role with states.

Where nonstate actors play an equal role with states, a “mixed parentage” regime, state

actors do not always determine the outcome. Nor do states always prevail in decision

making when conflicts arise.138 The author cites Amnesty International as an example of a

nonstate international organization that is often successful in achieving its objectives in

conflicts against the state. Haufler’s analysis notes a relationship between domestic

politics, international regimes and nonstate actors. However, the analysis does not

identify the ways in which each factor can be expected to influence international

outcomes.

138 Haufler, Virginia, “Crossing the boundary Between Public and Private: International Regimes and Nonstate Actors,” in Volker Rittberger, ed. Regime Theory and international Relations. Oxford: Clarendon Press, 1993. pp. 94-111.

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Martin and Simmons also advocate the introduction of domestic politics back into

the analysis of international institutions. They argue that international institutions can

change state behavior by substituting for domestic practices. The crucial variables, they

point out, are the conditions under which domestic actors are willing to substitute

international institutions for domestic institutions; identifying the beneficiaries of this

transfer of power; and the possibilities of enforcibility and compliance with international

institutional decisions by domestic institutions. They concluded that domestic actors

intentionally delegate policy making authority to the international level when it means the

advancement of their interests.1’9

International Regime and Domestic Politics

In their analysis of the relationship between international regime rules and norms

and domestic policy outcomes, Cortell and Davies begin by asserting that international

rules and norms do have an influence on national policy. This influence is exerted when

domestic political actors incorporate international regime values and belief systems in the

i:w Lisa Martin and Beth A. Simmons, “Theories and Empirical Studies of International Institutions,” International Organization. Vol. 52 no. 4, Autumn 1998, p. 747.

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standard operational procedures of bureaucracies as well as when regime values and

norms are incorporated in domestic laws and policy measures.140

International regimes become more relevant in the context of bureaucratic

conflicts. When bureaucratic actors or societal groups choose to question the legitimacy

of a competing position or seek to justify an unpopular position, each side in the conflict

may appeal to international regime rules and norms to justify its particular stance. The act

of bringing international regime norms and rules in the national policy debate, the authors

note, is a strategy that has been frequently employed by both bureaucrats and interest

groups in their attempts to influence policy outcomes.

For such a strategy to successfully affect policy outcomes, Cortell and Davis note

that two conditions must be present. First, the issue around which the conflict is

generated, and on behalf of which the international rules or norms are being appealed,

must be a salient issue. Second, the appropriate domestic decision-making structure that

fosters societal penetration must also exist. The authors classify the range of possible

domestic decision-making structures along two continua. The first continuum is the

degree of centralization of the decision-making authority whereby decision-making

institutions may be centralized to decentralized. The second continuum is the pattern of

140 Andrew' P. Cortell and James W. Davis, Jr. "How' Do International Institutions Matter? The Domestic Impact of International Rules and Norms." in International Studies Quarterly, Vol 40 No. 4 Dec. 1996. pp 451-454.

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between state and society may either be distant to the decision-making process or close.

These two categories result in four types of decision-making structures (Fig. 2-3).141

These structures are centralized states with distant societal relations, centralized states

with close societal relations, decentralized states with distant societal relations and

decentralized states with close societal relations. Type I and Type II structures are

centralized decision-making units that involve fewer bureaucratic players while type III

and Type IV are decentralized involving more bureaucratic players. Type I and Type II

structures are expected to be more independent of international regimes where decision

makers are unlikely to appeal to international rules and norms to validate their positions

whereas Type III and Type IV, are more likely to appeal to international rules and norms

to validate their positions.

Ibid, p. 457.

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Type I and Type III are distant structures where decision-makers may or may not

make appeals to relevant international rules and norms to validate their positions,

depending on the salience of the issue. If they do appeal to international rules and norms,

their appeal may or may not be successful. In Type II and IV structures where there are

Figure 2-2: Cortell and Davis’ typology of domestic structural contents

Pattern of State-Societal Relations

Structure of decision-making Distant Close a u th o rity

Centralized T y p e i T y p e II

Decentralized T y p e III T y p e TV

close relations with societal actors, societal actors are more inclined to appeal to

international rules and norms to influence policy outcomes. When there are close societal

relations, in the event of domestic conflict, the international regime rules and norms

become central to the resolution of the conflict. The successful appeal to international

regime rules and norms to resolve the conflict, Cortell and Davis argue, is more likely to

occur in a decentralized decision-making environment where societal groups play a role

and when one side appeals to international regime rules and norms to legitimize its

position. This is especially relevant when

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...the societal actor utilized a domestic procedure that sets in motion the prescriptions of an international institution. In this case, the institutional arrangements linking societal actors to the policy process serve a dual role, not only enabling societal actors to invoke the international rule, but also according them a legal right by which to elicit the government's implementation of the rule's prescription.142

Risse-Kappen’s analysis of domestic output addresses the one major shortcoming

of Cortell and Davis. Like that of Cortell and Davis, the author’s analysis seeks to

determine under what domestic and international conditions transnational actors and

coalitions will induce policy change in a specific issue-area. The author identifies two

factors that affect the ability of transnational actors and coalitions to successfully

determine state policy. The first factor is the degree of international institutionalization of

the issue-area. International institutionalization is defined as “the extent to which the

specific issue-area is regulated by bilateral agreements, multilateral regimes, and/or

international organizations.”143 The more the issue-area is regulated by international

Cortell and Davis, p. 457

143 Thomas Risse-Kappen, “Bringing Transnational Relations Back In: Introduction” in Thomas Risse-Kappen, Bringing Transnational Relations Back In : Nonstate Actors. Domestic Structures, and International Institutions (Cambridge ; New York, NY, USA : Cambridge University Press, 1995) p.6.

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Figure 2-3: Tvpes of Structures and Countries Investigated Society

Strong Weak

Policy Networks Policy Networks

Consensual Polarized Consensual Polarized

Corporatist Stalemate State-Dominated State-Controlled

Centralized (Japan) (India, pre- (Singapore, South (USSR, East 1989 Hungary Korea, Zimbabwe) Germany, Romania)

Political Institutions

Society-Dominated Fragile

Fragmented (Hong Kong, Philippines, (Kenya, Russia) USA)

Source: Thomas Risse-Kappen, Bringing Transnational Relations Back In : Nonstate Actors. Domestic Structures, and International Institutions, p. 23.

regime norms of cooperation, the more “permeable” the domestic society becomes as a

result of these transnational activities.144

The second factor that impacts domestic outcomes is differences in domestic

structures. Domestic structure is the avenue that facilitates the penetration of transnational

actors into the political system. Risse-Kappen’s domestic structure consists of three

elements: a) the structure of the state, b) the structure of society and c) the policy

network. The state may be centralized or fragmented, the society may be weak or strong,

and the policy network may be consensual or polarized. From this scheme emerge six

144 Ibid, p. 5.

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types of domestic structures: state-controlled, state-dominated, stalemate, corporatist,

society-dominated and fragile.145

The state-controlled structure is highly centralized with strong government and

weak societal organizations to which belong the USSR, East Germany and Romania.

Here, the society is too weak to counter the power of the state. State-dominated, on the

other hand, also possesses a strong state and centralized domestic structures. In this

category we find Singapore, South Korea, Zimbabwe. However the political culture and

societal organizations provide more of a challenge to the power of the state than exists

under the state-controlled structure. Under the stalemate domestic structure, to which

belong India and pre-1989 Hungary, a strong state faces strong social organizations in a

decision-making system that is highly polarized.

In the context of weak state structures, the corporatist structure is one that

operates in the face of powerful social organizations where continuous bargaining takes

place, the resuit of which is often compromise. Here, Risse-Kappen places the Japanese

state. The society-dominated system, also possessing a weak state, consists of

fragmented and decentralized government where there are strong societal interest groups.

Here we find Hong Kong, the Philippines, and the USA. To this category, this author

adds Jamaican. Finally, fragile domestic structures are also systems that possess

Ibid, pp. 22-24.

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fragmented state institutions and weak social organizations. In this category, we find

Kenya and Russia. Based on these ideal types, Risse-Kappen makes the following

conclusion. Given similar international conditions, variation in the policy impact of

transnational actors will be determined by differences in domestic structures. It is the

domestic structures, the author argues, that “mediate, filter, and refract the efforts by

transnational actors and alliances to influence policies in the various issue-areas.”146

Risse-Kappen also notes that two hurdles must be overcome in order for

transnational actors to affect policy outcomes. First, they must gain access to the domestic

political system. Their ability to gain access is largely a function of the domestic

structure. Access is most difficult in state-dominated or controlled structures, and easiest

in fragile or society-dominated structures. In state-controlled domestic structures,

governments have the freedom to restrict transnational access, whereas in fragmented

states the governments are less capable of preventing transnational activities. In society-

dominated and fragile structures, transnational actors have easy access and are able to

penetrate the political system.

While access is a necessary first step to control of policy outcomes, Risse-Kappen

notes, it is not sufficient to achieve the desired outcome. The second hurdle and necessary

step is generating winning coalitions or alliances among social groups that lead to the

Ibid, p. 25.

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implementation of predetermined policy objectives. The structure of the state is what

determines the ability to not only gain access, but more important, to form winning

coalitions.147

The third, and important element which, the author argues, plays an important role

in mediating the policy impact of transnational actors is international structures of

governance. The more institutionalized and regulated the international environment, the

more transnational activities are expected to flourish and the less national governments

should be able to constrain them. However, in an atmosphere that is unregulated by

international agreements, domestic structures should account “almost exclusively” for the

differences in policy impact, the author notes.148

International institutions, the author argues, are expected to facilitate the access of

transnational actors to the national policymaking process and increase the availability of

channels which transnational actors can use to target domestic structures in order that

they might influence national outcomes. In so doing they reduce the effects of domestic

structures on domestic outcomes. International regimes and organizations provide the

channels into the domestic political systems which domestic structures might otherwise

limit. The author concludes that international institutions facilitate access to national

political processes, enabling the creation of transgovernmental networks. Secondly,

147 Ibid, p. 29.

148 Ibid, p. 30.

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international institutions in the respective issue-area are expected to reduce the coalition-

building requirements for transnational coalitions, particularly those advocating norm

compliance.149

Risse-Kappen’s analysis identified three important elements that affect domestic

output. First is the nature of the domestic decision-making structure and the ability of

societal actors to gain access to that structure. The second is the international structure of

the issue and the extent to which the issue is regulated and institutionalized. Third is the

ability of societal groups to generate winning coalitions in order to achieve desired policy

objectives.

Hypothesis

The hypothesis of this dissertation is that Jamaica’s failure to liberalize the

domestic telecommunications satellite regime by acquiring the domestic license for the

operation of the US separate satellite system at a time when economic liberalization had

permeated the global economy can be explained by three characteristics of the domestic

satellite sector. First, the sector’s monopoly was control by the Cable and

Wireless/Jamintel partnership which doubled as supplier of telecommunications services

as well as Intelsat signatories doubled as enforcers of the rules of the international

satellite regime. Intelsat’s structure was one in which signatories occupy the dual role as

Ibid, p. 32.

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both rule-makers and rule enforcers in the international satellite sector. Their rule-making

function occurred within the Intelsat global context whereas their rule-enforcement

function is carried out within the confines of the domestic telecommunications sector.

Second, Cable and Wireless/Jamintel partnership maintained a close relationship

with the state regulatory institution. This relationship allowed the partners the dual

capacity to effectively nullify the rules of the system by simply failing to enforce them.

Therefore, while the mandate of the new separate system policy was to create a

competitive environment, Jamintel’s mandate was to eliminate competition. As the

environment gave way to a new climate of liberalization internationally, the new

competitive climate were at odds with the interest of domestic telecommunications

companies, such as Jamintel. Therefore, despite approvals from both Intelsat and the

FCC, Jamaica remained within the Intelsat due to pressures from Cable and Wireless,

COMSAT and Telephone Company of Jamaica to maintain a closed domestic industry.

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CHAPTER THREE

THE INTERNATIONAL TELECOMMUNICATIONS SATELLITE

ORGANIZATION (INTELSAT)

Introduction

For two decades the International Telecommunications Satellite Organization

(Intelsat) stood at the apex of the global satellite system and played a major role in

international and domestic satellite decisions. From- its inception in 1963, it oversaw and

regulated all aspects of international and domestic transactions, requiring domestic

authorization prior to all transactions involving satellite technology. As a result,

Jamaica’s decision to broke new ground in international satellite communications by

using a non-Intelsat satellite company warranted their intervention and prior approval.

Jamaica’s decision therefore had international as well as domestic repercussions.

This is the first of two chapters which lay the international foundation on which

Jamaica’s decision to establish the Digiport decision using a competitive domestic

satellite system must be understood. It has two objectives. First, it outlines the historical

evolution of the Intelsat system that led to new rules and regulations among which was

the decision to allow competition. This history includes a look at the conditions that

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produced the new separate satellite systems and policies supporting them - all of which

were at the heart of the tensions that Jamaica experienced as it sought to liberalize its

satellite sector. The chapter examines the implications of these changes on Jampro’s

decision to liberalize the provision of satellite services and the implications it had on

international politics.

Secondly, this chapter also analyses the structure of Intelsat and the role played by

signatories within that structure. That role conditioned their domestic preferences on the

issue of telecommunications liberalizing within the domestic satellite sector. It provides

the foundation for understanding the way in which the Intelsat monopoly regime

impinged on the outcome of the Jamaica Digiport decision and the closing of the sector.

The chapter presents the view that the decision of the Intelsat signatories Cable and

Wireless and Jamintel to close the sector was one which benefitted the Intelsat and

provided its signatories with a motivation to maintain a closed sector. Chapter Four

examines the changing satellite market over which Intelsat presided.

The Intelsat System

It began as an international intergovernmental organization when a group of 18

industrial nations attempted to meet their own domestic and international satellite needs

and the needs of other nations in the world. This intergovernmental organization was

established to function as a global satellite monopoly. In addition to government

representatives, its primary members also included national telecommunications

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. companies which collectively owned and operated Intelsat’s communications satellite

system. The purpose of the organization was cooperatively to provide uninterrupted

global satellite services to all interested nations.

The Intelsat satellite system consists of a two segments: space segment and an

earth segment. Together they comprise the equipment required for the transmission of

Intelsat services. The space segment consists of 15 satellites in geosynchronous orbit

above the Atlantic, the Pacific and the Indian Oceans. Geostationary satellites are located

exactly 22,238 miles above the Equator. At that orbit the satellites rotate at the same

speed as the earth, making them perfectly synchronized with the earth stations that send

messages back and forth between them. The space segment is fully owned by Intelsat.

Member nations possess investment shares in the space segment based on their respective

use of the satellite system. Nations with high telecommunications volume such as the

United States possess a larger number of shares of the space segment than smaller

developing nations whose level of usage is relatively lower. The United States’ signatory,

Communications Satellite Corporation (Comsat), owns the largest proportion, 61% of

total shares.

Intelsat has made great strides in the development of its space segment. The first

satellite for commercial use, Intelsat I, was launched and placed in orbit in April 1965

over the Atlantic. A second set of satellites, the Intelsat II series, was launched two years

later, placing two satellites in orbit over the Atlantic and two over the Pacific.

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Components of the third series, Intelsat III, were launched between 1968 and 1969 and

were placed in orbit over the Atlantic Ocean, the Pacific Ocean and the Indian Ocean.

The Intelsat IV series of satellite were launched in 1970 at Cape Canaveral. It had the

capacity of transmitting six thousand telephone calls and twelve simultaneous television

programs. It was designed by Hughes Aircraft Company. By 1984, Intelsat had launched

five new generations of satellites, each generation more powerful in their capabilities and

more extensive in their global reach. Six new Intelsat V satellites were in operation. In

addition to the newer generation, the number of earth stations also increased from five in

the United States, France, Great Britain, West Germany and Italy, to 300 stations in 146

countries in 1982.1'>0

The ground segment consists of each nation’s earth stations. Intelsat has

established the standards for earth stations to which each signatory is bound to comply.

Adhering to these standards allows the proper transmission of services to more than 1600

earth station-to-earth station paths. Communications between the earth stations and the

satellites have resulted in the existence of more than two thousand paths that transmit

services between satellites and earth stations for business users located in the member

nations. Services include television, telephone, data, telex, facsimile and specific business

services such as video conferencing, electronic mail and high speed data services.

Intelsat’s services are made available to all member nations at the same rate regardless of

150 Edward Plowman, Space, Earth and Communication (Westport: Quorum Books, 1984) p. 82.

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a nation's membership status. Membership is extended to any nation which is a member

of the International Telecommunications Union (ITU). While Intelsat owns the space

segment, the earth stations are owned and operated by the signatories or

telecommunications companies of the countries in which they are located.

The Origin of Intelsat

In 1962, partly as a result of the reaction of Congress to the 1957 launch of the

Soviet satellite, Sputnik, and partly to advance its own fledgling space program, the

United States took the initiative in forming Intelsat by passing the Communications

Satellite Act.1’’1 The Act stated that:

...it is the policy of the United States to establish, in conjunction and in cooperation with other countries, as expeditiously as practicable, a commercial communications network, which will be responsive to public needs and national objectives, which will serve the communications needs of the United States and other countries, and which will contribute to world peace and understanding.152

151 Richard R. Collino, “Global Politics and Intelsat: The conduct of Foreign Relations in an Electronically Interconnected World,” Telecommunications Journal September 1986, pp. 195-208.

152 Section 102 of the United States Communications Act of 1962.

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In late 1962, the U.S. began preliminary discussions with the United Kingdom and

Canada, followed by a series of negotiations with the nations of western Europe,

Australia, Canada and Japan,

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Tabic 3-1: INTELSAT'S FOUNDING MEMBERS

Country Date of Entry* % Shares

Australia 23612 2.372

Belgium 23782 9.49

Canada 23608 3.234

Denmark 23803 0.345

France 23759 5.261

Germany 23640 5.261

Ireland 23654 0.302

Israel 23710 0.564

Italy 23810 1.898

Japan 23608 1.725

Netherlands 23608 0.863

Norway 23619 0.345

Portugal 23755 0.345

Spain 23608 0.949

Sweden January 18, 1965 0.604

Switzerland 23635 1.22

United Kingdom 23608 7.245

United States 23608 52.6

Vatican City 23608 0.043

Source: Comsat Annual Report, 1970, pp. 101-106

*date on which agreement was signed

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to determine the specifics of the new organization. The new organization was formed

with eighteen member nations (Table 3-1), which together controlled more than 80% of

world telephone traffic.

The US Communications Satellite Act authorized the creation of Comsat to

provide the United States with official representation to Intelsat. Comsat had as its head a

fifteen-man board of directors. Six of these were appointed by the United States Congress

to represent the public shareholders, three were appointed by the President and six were

appointed representatives of carrier shareholders. Of the six carrier representatives, three

represented AT&T, two represented ITT, and one represented the Hawaiian

Telecommunications Company (HTC). By 1969, ITT and HTC had sold their shares in

Comsat to the public, giving up their seats on the Board and leaving AT&T as the only

common carrier with representation on the board.

Organizational Structure: the Old Agreement

Early discussions between COMSAT and the founding member states resulted in

the establishment of specific guidelines within which the organization would function.

These early discussions yielded two separate but interrelated agreements: a) the

intergovernmental “Agreement Establishing an Interim Arrangement for a Global

Commercial Communications Satellite System" or Interim Agreement and b) the “Special

Agreement and Supplementary Agreement on Arbitration’’ or Special Agreement. Both

agreements resulted in the creation of a four-part organizational structure. This structure

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consisted of a) the consortium of states, b) the consortium of signatories c) the executive

organ, the fCSC, and d) the manager Comsat. This four-part structure was put in effect in

August of 1964.153

The Interim Agreement created a consortium of member states, whereas the

Special Agreement authorized the creation of a consortium of officially-designated

national telecommunications agencies or signatories. Signatories range from 100%

government-owned operations to 100% private enterprises, such as Comsat. The Special

Agreement also assigned ownership of the Intelsat space segment to the signatories “in

proportion to their respective contributions to the costs of the design, development,

construction and establishment of the space segment.”1'’4 Both state representatives and

signatories shared the responsibilities of establishing and implementing long range policy

goals and objectives.

153 United States Department of State, “Agreement Establishing Interim Agreements for a Global Commercial Communications Satellite System,” Treaties and International Acts Series. No. 5646, Article VIII.

154 Ibid, Article HI.

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The Interim and Special Agreements authorized the establishment of two

additional bodies, an executive body and a manager. The Interim Communications

Satellite Committee (ICSC) served as the executive body while Comsat served as the

Figure 3-1: The Organization and Services of Intelsat in 1970

International Consortium of States Consortium of Signatories Communications • 83 states Satellite Committee • 1 Vote per state • 83 signatories ® 27 Board members, • Meetings every other • 1 Vote per signatory representing 83 of the year • Annual meetings signatories • Voting weighted by investment share

C o m sat Services Include: • Carries out day-to-day Fax management and T elephone business activities Telex V ideo

Source: Constructed by the author

manager. The ICSC established guidelines on operational issues such as the criteria for

joining, the use of services by nonmembers, payment of dues and penalties for lack of

payment, withdrawal from the organization, minimum shares, procurement matters ancl

the rights and obligations of Signatories and Parties. Decision-making in the ICSC was

achieved by voting. Each nation’s vote was equivalent to its ownership share or use of

Intelsat's space segment. Comsat controlled 61% of the organization's shares; the

European nations controlled 30%; and the remaining 9% was owned by Canada, Australia

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and Japan combined. Because of its technical expertise, Comsat agreed to assume the role

of manager.

In the first decade of its operation, the organization’s decision-making was

plagued by disagreements. Disagreements revolved around three major issues. The first

was whether Comsat was in fact exercising excessive control over Intelsat with limited or

no accountable to Intelsat’s members. Accusations of excessive control emerged from

European nations, led by France. Europeans perceived a conflict of interest between

Comsat’s role as the majority shareholder of the Intelsat space segment and its role as the

space-segment manager. The Europeans members argued that Comsat’s decisions were

designed to maximize Comsat’s gain vis-a-vis the other service providers. As a result,

Comsat’s research and development decisions were viewed with suspicion, being

perceived instead as directed towards maximizing its Comsat’s corporate profits rather

than those of the international community. I;,?

A second range of issues revolve around the growing power imbalances between

developing nations and industrialized nations within the organization. Since decision

making was allotted according to ownership shares and since more than 80% of the

shares were owned by the industrialized nations, the organization’s control rested heavily

in the hands of the industrialized nations and to whom also accrued the sector’s profits.

155 Richard R Collino. “The Intelsat System: An Overview’’ in Apter and Pelton. The INTELSAT Global Satellite System, p. 69.

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Developing nations desired that Intelsat begin to address the growing concerns of

inequity within the organization and look for ways in which this issue could be resolved

to the satisfaction of all.156

The third issue of concern was the structure of the international

telecommunications satellite system itself. Comsat continued preference was for the

single global system despite opposition whereas others sought the liberalization of the

international satellite regime by allowing the operation of separate satellite systems.157

Separate systems were privately owned communications satellite system established to

provide new or specialized communications needs outside of the Intelsat system, that led

to the opening of the international telecommunications market to outside competition.158

Whereas in the United States and several European nations there were considerable

domestic pressures in support of separate satellite systems, Europeans, nevertheless

preferred the establishment of their own regional systems where they could control

decisions concerning research and development and technological innovation.159

15f> Judith Tegger Kildow, INTELSAT. Policy-Maker’s Dilemma. (Lexington, MA: Lexington Books, 1973), p. 63.

157 Ibid

158 Twentieth Century Fund. Task Force on International Satellite Communications. Communicating by Satellite: Report of the Twentieth Century Fund Task Force on International Communications (New York: Twentieth Century Fund, 1969) p. 3.

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The New Operating Agreement

By 1973 when Intelsat’s membership had grown from the original 18 members to

83, they met to negotiate a new set of agreements, the Operating Agreement that replaced

the temporary Interim Agreement. The Operating Agreement was established as a

mechanism through which the organization attempted to address the issues of Comsat

control, the power imbalance between states and the issue of access to the global market.

The new agreement maintained the four-tier structure which consisted of a) the Assembly

of Parties, b) the Meeting of Signatories, c) the new Executive Organ of the Board of

Figure 3-2: The Organization and Services of Intelsat in 1989

B o ard of G o v ern o rs Assembly of Parties Meeting of Signatories • 27 Board m em bers, 139 Parties • 139 Signatories representing 139 o f the 1 Vote per party • 1 Vote per signatory signatories Meetings every other » Annual meetings • Voting weighted by year investm erit share • Quarterly m eetings

Director General and Services Include: INTELSAT Management Data transmissions » Carries out day-to-day E -m ail management and Fax business activities T ele p h o n e Telex V ideo

Source: Constructed by the author

Governors which met four times per year, and d) Intelsat’s management led by the new

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Director General.160 Under this new arrangement, the Board of Governors replaced the

Interim Communications Satellite Committee, and the Director General replaced Comsat.

The newly created Assembly of Parties consisted of a representative from each

member state as it did under the old arrangement. Representatives met every two years to

transact the business of the organization and to discuss constitutional matters and long

term issues. Voting in the Assembly was based on a one-nation one-vote policy allowing

all nations equal representation. A two-thirds vote was required formally to approve

decisions that came before the Assembly.

The Meeting of Signatories convened annually to discuss technical, financial and

operational matters. Like the Assembly of Parties, the Meeting of Signatories, had a one-

nation one-vote policy. Membership was open to any ITU nation or its signatory that

wished to join. Membership continued to increase annually as states sought to avail

themselves of the benefits of access to and use of the space segment.

The Board of Governors, which replaced the ICSC, consisted of twenty-seven

members chosen by the Assembly of Parties to reflect the geographic diversity of the

organization. The Board’s responsibilities were to supervise the organization’s mandate

160 United States Department of State, “International Telecommunications Satellite Organization, Agreement between Intelsat and united States of America,’’ Treaties and International Acts, Series # 7532.

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to design, develop, construct, establish, operate and maintain the Intelsat space segment

and any other activities upon which Intelsat was authorized to embark. The Board

established a new system of voting that allowed all nations representation. Unlike the

ICSC, where a system of weighed voting tied a nation’s voting power to its level of

investment, the new arrangement limited large investors such as the United States, which

possessed more than 40% of Intelsat shares, from exercising more than 40% of the vote,

opening the way for the inclusion of other nations in decision-making. Under this new

arrangement, representation on the Board was not limited to nations with large amounts

of shares, but was open to any nation that possessed more than 1.5% of shares.

For those nations whose shares fell below the 1.5% minimum range for board

representation, the Board reserved five additional seats as set-asides. These set-asides

could have been used by either the individual nation whose shares fell below the

minimum or by a group of nations who, together, failed to fulfill the minimum of shares

required for representation on the Board. Nations below the range were permitted to form

coalitions with similar nations to gain representation on the Board or to increase the level

of representation that they already possessed. This new arrangement was designed to

prevent excessive influence by a small number of large investors and to prevent the

exclusion of small developing states. The new voting rule also created a wider geographic

base, allowing more developing nations representation on the Board for the first time

(Appendix I).

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The fourth structure, an Executive Organ, was established in Washington, D.C.,

under the leadership of the Director General. Appointed by the Board of Governors, the

Director General, was the new structure that had been created to replace Comsat as

manager of Intelsat and reported directly to the Board of Governors,. The manager was

responsible for technical staffing, budget and finance, administration, and other

operational functions. Comsat continued to function as Management Services Contractor

of technical affairs until 1979. After 1979, its role have been reduced to that of an

independent contractor as the Director General’s office assumed Comsat’s managerial

role.

The role of the manager was to “design, develop, construct, establish, maintain,

and operate the space segment of a the global commercial communications satellite

system.”161 To bring greater accountability to the process, however, the Director General

appointed foreign staff “assignees” for specified periods and created a committee to

review all Comsat decisions. Foreign “assignees” were non-U.S. staff appointed to create

a more nationally diverse institution. The review process continued until Comsat’s role of

Management Services Contractor ended in 1979.162 It was successful in ensuring that

Comsat’s influence was reduced.

See Collino. The INTELSAT System, p. 61.

Ibid p. 62.

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Separate Systems and International Satellite Communication.

The Intelsat monopoly persisted virtually unchallenged in the first two decades

following its inception, occasionally making allowances for other suppliers to provide

services under specified conditions. However, in 1984, the deregulation of the

telecommunications industry in many industrialized nations resulted in a plethora of new

satellite suppliers seeking to enter the world market. As the AT&T monopoly was

dismantled, in the United States, satellite companies such as PanAmSat, Orion and

Tel star, emerged and petitioned the Federal Communications Commission (FCC) for

approval to provide satellite services to the global community. Pressures from these new

firms resulted in the introduction of the first separate satellite system rule in the United

States which permitted new companies to operate under specified conditions. This new

rule posed the first real threat to the stability of the Intelsat monopoly.

Despite the domestic opposition of the new firms to the international satellite

monopoly, their presence, however, was not enough to erode Intelsat’s domination of the

global satellite market monopoly. Intelsat’s continued dominance can best be explained

by structural characteristics of the international satellite sector which distinguishes it

from other international regimes. Since Intelsat’s inception, the national signatories have

played a central decision-making role through Intelsat’s Meeting of Signatories. All

decisions to allow competition in the global satellite market have to meet with their

approval. Intelsat’ structure allowed national telecommunications suppliers to play

significant decision-making roles while being isolated from bureaucratic politics in

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member states. This structure empowered signatories to selectively restrict competition

from nonlntelsat suppliers.

The tensions over the issue of separate satellite systems was addressed in the new

agreement was that of competition within the global system. In the first decade of its

operation, competition in the provision of international satellite services was prohibited.

However, in the second decade of its operation, the consensus around this position began

to erode, creating major disagreements among members as to how the international

satellite system should and would be organized. The resistance to the Intelsat monopoly

system emerged in the second decade of the organizations and had its roots among the

Europeans.

The United States’ initial support for a single global system was based on

technical and commercial criteria: “There are political, economic and technical reasons

for the basic United States objective of a single global system.... With a single global

system, there would be avoidance of major problems of interference, and more efficient

use of the frequency spectrum.”163 As a result, the parties to the Interim Agreement agreed

a single global telecommunications system and agreed not to participate in any satellite

system other than Intelsat. The agreement did acknowledge that there might be times

when other satellite systems would be needed in order to meet the unique needs of some

governments or that the creation of separate satellite systems might be necessary for the

163 Kildrow, p. 59.

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sake of the national interest. While allowances were made for such needs, nevertheless

the overriding mandate was a commitment to the monopoly system that discourages

competing satellite systems.

The European discontent stemmed from a distrust of COMSAT’s control of

research and development and its control of contracts for services. l64They argued that

separate satellite systems would achieve greater operational flexibility at a substantially

lower cost when compared to that of using Intelsat services, and that Carriers could

provide business data and video distribution services at a comparatively lower cost .lfo

Separate systems, they argue, would stimulate technological innovation, improve

network efficiency, reduce user costs and create new business opportunities resulting in

major benefits for the public without economic harm to Intelsat. Intelsat would not be

harmed economically, they argued, because the proposed separate systems would be

established only in areas in which Intelsat did not operate and had no intention of

operating in the future.166

Comsat deeply opposed the operation of separate satellite systems. Comsat argued

that separate systems seeking to enter the global market were from companies that were

164 Ibid.

165 INTELSAT, “Flexibility to Complete: INTELSAT in an Era of Separate Systems,” Addendum No. 1 to BG-63-39E B/6/85, August 19, 1985.

166 Ibid.

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supplying the same technology and services as those provided by Intelsat, resulting in a

loss of traffic and revenue for Intelsat. The consequences, Comsat argues, was be an

increase in Intelsat’s rates with devastating consequences for developing nations.167

Despite its objections, Comsat acquiesced to separate systems within the Intelsat

framework under certain circumstances. The system had to be technically compatible

with Intelsat, should not result in loss of income or traffic for Intelsat, and must not

interfere with Intelsat’s ability to carry out its primary function, which is to transmit

voice, record and data traffic. These conditions were established as the criteria for

Intelsat’s approval of separate satellite systems.168 However, Comsat maintained its

opposition to regional satellite systems.

In March of 1983, in reaction to the impending breakup of AT&T and the

creation of competition in the United States’ telecommunications industry, the FCC

received petitions from several United States’ firms for authorization to establish separate

satellite systems independent of Intelsat. These petitions (Table 2) prompted the FCC to

reexamine existing US policy to determine whether separate systems should be allowed

to operate in light of existing laws, treaties and foreign policy. As a result, in 1985, the

167 Ibid 168 These recommendations came out of the Report of the Twentieth Century Task Force, op. cit.

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FCC establish a committee to review the concerns of separate satellite systems and to

propose changes in United States’ international satellite policy established in 1963.

The outcome of the review was President Reagan’s 1984 Presidential

Determination Number 85-2, which marked the beginning of a monumental shift in US

policy when the Federal

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Table 3-2: United States Companies Licensed, Operational, and with Applications Pending to Provide International Satellite Communications Services (1984- 1994)

Type of System Licensed Operational Unlicensed, with Application Pending

Geostationary169 4 4 0

Big LEO170 3 0 3

Little LEO171 3 1 6

Broadcasting satellite services172 0 0 1

28 Gigahertz frequency or higher173 0 0 11

Source: The United States general Accounting Office, Telecommunications: Competition Issues in

International Satellite Communications. Washington, D.C.: NTIS, October 1996), page 27.

169 These satellite systems were located 22,300 miles above the earth and operated on the C band (4 to 6 gigahertz portion of the spectrum) and the Ku band (12 to 14 gigahertz of the spectrum).

170

Big LEOs transmitted radio signals above i gigahertz portion of the spectrum. These satellite systems were generally used to send voice and facsimile, as well as data transmissions.

171 Little LEOs transmitted radio signals below 1 gigahertz on the spectrum. These satellite systems were generally used to send only non-voice data transmissions.

172 These satellites are geostationary but were licensed by the FCC under a separate licensing category. They offer one-way communications. These satellites were not in competition with Intelsat. 173 These satellite systems were either geostationary or LEOs. Their services included on-demand data or video applications directly to the home. These satellite services were also not in competition with Intelsat.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Communications Commission (FCC) authorized the operation of alternative satellite

systems for reasons of national security.174 These private commercial international

satellite systems were permitted to independent of the Intelsat system. The new FCC

policy included the following restrictions established by Intelsat to prevent new suppliers

from undermining the flow of traffic and profits to the Intelsat system:

a) separate systems may not interconnect directly or indirectly with the existing public-switched network, that is, the Intelsat network,

b) separate systems operators cannot operate common carriers, that is, providers of telephone and telex services

c) the use of separate systems by United States carriers require authorization from the FCC in accordance with Section 214 of the Communications Act of 1934.17:1

The FCC's decision authorizing the operation of United States domestic separate

systems was met with a variety of responses. The United Kingdom supported the

introduction of competition:

174

Senior Interagency Group on International Communication and Information Policy. A White Paper on New International Satellite Systems (Springfield, Va: National Technical Information Services, 1985). 17? Federal Communications Commission, “Separate satellite Systems for International Communications: In the Matter of Establishing Satellite Systems Providing International Communications,’’ 101 F.C.C. 2d 1046 (1985), pp 290-291.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. It is the United Kingdom's continuing strong commitment to Intelsat as the principal organization responsible for the provision of global satellite facilities for international communications. [However its support of separate systems] was clearly consistent with the United Kingdom government's support for the development of competing international telecommunications systems, both satellite and cable, in response to market needs. .. .Intelsat must be prepared to meet competition.176

The position of the FCC and its counterpart in the United Kingdom conflicted

greatly with the principles, norms and values of the Intelsat regime. As Intelsat’s Director

General stated in his response:

It is well known that Intelsat Governments (Parties) and telecommunications entities (Signatories) have steadfastly opposed any change in the policy embodied in the Intelsat Agreements which provides for the establishment and operation of a single global communications satellite system. These member Governments and telecommunications authorities have expressed both outright opposition to the authorization of separate international communications satellite systems apart from Intelsat, and serious reservations about the change in U.S. policy reflected in the 28 November Presidential Determination. They have communicated both directly with appropriate agencies of the United States’ Government and through the passage of unanimous resolutions by the Assembly of

176 A letter to the Director General of Intelsat dated August 22, 1986 from Mr. Robert Priddle of the United Kingdom department of Trade and Industry in response to an inquiry from Intelsat regarding the United Kingdom’s position on separate systems.

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Parties, the principal organ of Intelsat, and the Meeting of Signatories, representing the investing telecommunications entities of Intelsat.177

Intelsat remained committed to a single global system with limited use of separate

satellite systems despite growing domestic pressures for change. Even the ensuing

changes in domestic policy we see in the United States, Great Britain and will see in

Jamaica, were insufficient to alter Intelsat’s fundamental operating principle of a single

global system which remained intact. The principle of the separate satellite system did not

take root in Intelsat despite the proliferation of private satellite companies (Appendix III)

and changes in the domestic policy of its representatives. National representatives

continued to maintain strong support for a single global system. While national

governments continued to press for the use of separate systems, rather than resulting in

changes in Intelsat policy, domestic pressures and domestic policy changes only resulted

in an inconsistency between domestic policy on separate systems and that of the

principles and norms of the international regime and states’ representatives.

Inconsistencies between domestic satellite policy and the position of national

signatories within Intelsat can be attributed to the organizational structure of Intelsat. At

the heart of the inconsistency were the Intelsat structures the Meeting of Signatories and

the Meeting of Parties. The signatories were the primary decision-makers as well as the

177 INTELSAT, “INTELSAT Director General Statement on United States’ Actions Regarding Separate Satellite Systems," BG-64-76E. August 19, 1985.

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organization’s principal investors in the Intelsat system and therefore sought to maintain

and protect its investment. The signatories’ interests were clearly enhanced by the

preservation of the Intelsat monopoly. The Assembly of Parties is also empowered to

protect the organization’s investments. Intelsat’s structure therefore functions to protect

the status quo of a single global system and deter entry of competition or any changes that

are inconsistent with the investment goals of the organization.

International Telecommunications System and International Regime Change

To summarize the dynamics of the first three decades of the organization’s

existence - first, the regime experienced a significant growth in membership during its

first three decades. The new members, which consisted mostly of developing nations,

sought more of a voice in the organization. While these developing nations sought to

increase their power, they echoed the European nations’ demand for a reduction in the

power and influence of Comsat.

The number of new states seeking to participate in the governance of the satellite

regime was only surpassed by the number of new firms seeking to enter the global

satellite market. The new firms posed a threat to the single global satellite system as it

sought to end the Intelsat monopoly. While the needs of developing states and the new

firms placed new demands for change on Intelsat, the developing states were initially

more successful in realizing their objective of reducing Comsat’s influence.

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One analysis that proves useful in explaining why new states were more

successful than the new firms within the international satellite regime is Stephen

Krasner’s analysis of international regime change.I7S In his analysis, Krasner argues that

there are two kinds of changes that occur in an international regime - internal and external

regime changes. Internal regime change is where there are changes in regime principles

and norms and changes that occur in rules and procedures.179 By contrast, external regime

changes occur where there are changes in principles and norms. This latter change,

Krasner argues, constitutes a change in the regime itself. On the other hand, Krasner

argued that a lack of coherence in a regime’s principles, norms, rules or decision-making

procedures results in the weakening of the regime, making the regime less coherent or

highly inconsistent.

The Intelsat members were successful in negotiating the Definitive Agreement. It

introduced changes in the organization’s rules and decision-making procedures. These

changes constituted the successful internal adjustment that occurred in Intelsat’s internal

organizational structure. These changes in the Definitive Agreement were the outcome of

the inclusion of the growing number of developing nations in the organization’s decision

making and the reduction of the control of the largest member, the United States. The

178 Stephen D. Krasner, “Structural Causes and Regime Consequences: Regimes as Intervening Variables” in Stephen D. Krasner eel., International Regimes (Ithaca, New York: Cornell University Press, 1983) pp 3-4.

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Agreement reflected internal regime adjustments rather than regime change and was

successful in making significant adjustments to Intelsat’s rules and decision-making

procedures.

The Agreement was not an attempt to transform the regime’s single global system

structure. The separate satellite system policy, on the other hand, constituted an attempt to

fundamentally transform the regime’s character by changing its principles and norms. If

successful, it would bring a significant transformation to the very character of the Intelsat

system, changing it from monopoly to a more competitive system. As a result, it met with

resistance from Comsat and those who benefitted from the monopoly system.

Conclusion

There were many changes in the international telecommunications sector in the

1980's which impinged on the Intelsat regime. Chief among these changes was the

deregulation of the telecommunication industry in the United States that resulted in the

end of the AT&T monopoly. As other nations followed suit the character of the global

telecommunications industry changed from one of monopoly control to one where

competition became increasingly acceptable. As the industry changed globally, pressures

from the domestic systems were exerted on Intelsat to introduce a separate systems policy

that reflected the changes that were already evident in the international

telecommunications regime.

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Intelsat’s national signatories, such as those of the United States, Great Britain

and Jamaica, battled internally with competing economic interests over the introduction

of separate satellite system into the global satellite market. Comsat had been the strongest

major supporter for a single satellite system. However, the deregulation of the United

States telecommunications market resulted in the creation of new competitive satellite

firms which posed a threat to the continuation of the single global system. The use of

separate satellite systems conflicted with the interests of national signatories and created

the basis of conflict between domestic groups seeking their use.

Jamaica’s teleport demonstrated several features of the global satellite sector.

First, it described the obstacles inherent in the attempt by a separate satellite system to

penetrate the Intelsat dominated global system. Second, it uncovered the mechanisms that

were in place that serve to preserve the monopoly status quo in the face of new and

conflicting principles that emerged to challenge the monopoly status quo that would

undermine the liberalization of the sector. Third, the project highlights the ways in which

transnational cooperation between satellite systems in both the United States and Jamaica

impact the sector. The combined strategies of both Comsat, Cable and Wireless and

Jamintel were employed to keep intact the global organizational structure of Intelsat as

well as the national satellite sector.

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CHAPTER FOUR

THE INTERNATIONAL TELECOMMUNICATIONS SATELLITE SECTOR:

ITS HISTORY AND TRANSFORMATION

Introduction

There were two kinds of changes taking place in the international

telecommunications satellite sector in 1984. One was the change in the international

regime which governed the sector. The second change, which precipitated the change in

the regime was the change in the international telephone and telegraph market. The

satellite sector had also been impacted by these significant transformations.

In 1984, when the liberalization of the global market began, the global market

began to experience transformations in its structure, where it moved from a sector with

few firms and significant barriers to entry to many firms and more accessible to newer

commercial entities. Other changes can be partly attributed to technological innovations

in the telecommunications sector and in the computer industries. These innovations

facilitated new enterprises which brought about an increase in the number of actors

seeking to provide services. However, Intelsat continued to place limitations on new

entrants so that they operated within the context of governmental regulations and

authoritative oversight.

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The chapter examines the evolution of the international satellite market from 1960

until it experienced significant transformations in 1989 when the Digiport decision was

implemented. It was over this market that Intelsat presided. The chapter highlights the

technological changes that occurred within that period and discusses the implications of

these innovations for competition and change. It sheds some light on the conflicts and

contradictions of this sector as a result of these changes that later culminated in the

separate satellite system policy. Finally, it reflects on the implications for competition

within the satellite sector for the future of the Intelsat regime.

The History of the Development of the International Telecommunications Satellite

Industry

In 1957, the Soviet Union launch its first satellite, Sputnik. This launch created an

urgency in the United States to develop its own satellite sector. As a result, in 1960

AT&T applied for and received an FCC license to engage in experimental satellite

communications with the goal of implementing an operating satellite system. As a result

of this experimentation, TELSTAR was launched in 1962. In 1963, RCA and Hughes

Aircraft Company, both of which had also been granted the same privilege by NASA,

also launched their projects - RELAY and SYNCOM, respectively. These innovations led

to the passage of the US Communications Satellite Act in 1962 which authorized the

formation of Comsat. The satellite systems of RCA and Hughes became the basis on

which Comsat formed its operation. Then in 1965 Comsat launched its own commercial

communications satellite, EARLY BIRD.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. These innovations in the United States prompted Canada to launch its first

domestic communications satellite in 1972. Two years later, Western Union launched the

first United States private domestic satellite, WESTAR. RCA also followed soon

thereafter with the launch of a second domestic satellite, RCA SATECOM. By 1976,

AT&T and Comsat had collaborated in the launch of the COMSTAR series of satellites

which were intended for voice and data transmission. This satellite series provided a

tremendous boost to the television and cable industries.

Of the satellite corporations that played a role in the emergence of the satelli te

sector, Western Union, one of the primary forerunners of the industry, is no longer in

existence. Hughes continues to operate and is currently a manufacturer of satellite

systems. However, Hughes, which had partnered with GTE, in the early 1960s, now

provides satellite services for the domestic market and does not interfere with the

international market controlled by Intelsat. AT&T still operates satellites but is no longer

in partnership with COMSAT.

By 1978, fourteen years after Intelsat was established, these companies began

gearing their operations for real competition in the international telecommunications

market. As a result, for the first time, Intelsat faced the possibility of competition from

the new companies attempting to operate outside of the Intelsat system and furthering

their own private pursuits. While these domestic companies were emerging, suppliers

from other regions of the world also began to surface as another possible source of

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competition. In 1976, PALAPA, a regional system, was launched in Indonesia. The same

year, Japan launched its domestic satellite system, followed by India in 1982 and

Australia, Mexico and Brazil in 1985. The major challenge to Intelsat, however, came

with the creation of Pan A mS at in 1983 and later Orion in 1984. Both firms attempted, for

the first time, to provide services to a market dominated by Intelsat. Technological

innovation also posed a major challenge to the Intelsat system, creating potential

alternatives to satellite technology.

Technological Challenges

The transformation of the telecommunication sector was affected not only by the

deregulation of the telephone and telegraph markets but also by the proliferation of

technological innovation in fiber optics, personal communications systems and in

maritime and mobile technology. These technological changes provided alternatives to

satellite communications and posed a threat to Intelsat’s market. The greatest threat from

these technological changes, however, was that they provided a point of accessibility to

the international satellite market for potential new separate satellite systems.

The technology that had a significant impact on the satellite sector was fiber

optics. In 1988, the first fiberoptic trans-Atlantic telephone cable, known as TAT-8, was

laid across the Atlantic ocean. Trans-Pacific cables were soon to follow. Fiber optic

technology had the potential of transporting a greater volume of telephone, data and video

traffic at a significantly lower cost than satellite technology. Fiber-optics, however, unlike

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satellite technology, was designed to only relay information from point to point and not

from point to multipoint as television broadcast technology. Nevertheless, the ability of

fiber optics technology to transfer larger volumes of telephone calls provided an

alternative to satellite communications.

A second innovation that directly affected the international satellite system was

personal communications systems (PCS) technology. PCS is a new generation of wireless

phone technology that three types of digital technology - Code Division Multiple Access

(CDMA), Global Systems for Mobile Communications (GSM), and Time Division

Multiple Access (TDMA).180 Digital technology is a significant improvement over the

former analog technology. The difference is not only in the quality of the reception

received, but also in the range of service possibilities. Digital phone technology provides

a variety of user possibilities - wireless phone, paging, message services and data

services. PCS technology, which operates through low earth orbit (LEO) satellites, has

the capable of being used anywhere. The major drawback of PCS technology is that with

the three digital technologies, phones using one of the digital technologies may not work

on another. 181

A third technological innovation, which provided a challenge for the international

communications satellite industry, occurred within the area of maritime and mobile

180 See http://dmsweb.badm.sc.edu/grover/telecomold/pcs home.him.

181 See http://inventors.about.com/jibrarv/weekl\7aaQ72199.him.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. technology, also. In 1976, COMSAT launched a new type of satellite — MARISAT —

for the purpose of providing mobile services to the United States Navy and other

maritime clients. Europe followed shortly after with the launch of MARECS. As a result

of both endeavors, in 1979 the United Nations International Maritime Organization

established the International Maritime Satellite Organization (INMARSAT) to regulate

services in that sector in the manner similar to Intelsat. At its inception, INMARISAT

utilized both MARISAT and MARECS, doing so until it launched its own satellites,

INMARISAT II and INMARISAT III. The maritime and mobile telecommunications

market for the first time offered alternative means of communication thereby posing a

threat to the land-based satellite systems which Intelsat represented.

Competition and the InternationalTelecommunications Satellite Industry

The gravest threat to the international telecommunications satellite industry,

however, came from companies seeking to compete in the market with Intelsat.

Beginning in 1983, the FCC received five applications from satellite companies seeking

licenses to operate in the international satellite market. The companies were Pan

American Satellite Corporation (PanAmSat), Orion Satellite Corporation. International

Satellite Inc., RCA American Communications, and Cygnus Corporation. The FCC

immediately began its deliberations on PanAmSat, International Satellite Inc. and

RCA AC. However, deliberations on Orion Satellite and Cygnus were postponed until a

later date. PanAmSat’s goal was to provide services between North America and Latin

America while RCA’s was to provide services between the US, Europe, and Africa.

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Based on the Communications Satellite Act of 1962, satellite companies outside

the Intelsat system were not permitted to operate unless the United States determined that

their operation was necessary and required in the national interest. The Senior Interagency

Group on International Communication and Information Policy was established to review

existing policy to determine whether the operation of separate systems would be in the

national interest. It was the recommendation of this committee that the national interest

would be enhanced allowing the operation of separate satellite systems. As a result, on

November 28, 1984, the president of the United States issued a determination which

permitted the operation of separate satellite systems on the grounds that they enhance the

national interest.182

Prior to the November 1984 declaration, United States firms faced restrictions

from both Intelsat and the FCC that limited their ability to provide satellite services

internationally. They were allowed to compete only in the area of television broadcasting,

video, data and voice transmission. They were restricted from entry into any area of

telephone services between companies and individuals that involved the use of local

telephone services. This restriction resulted in the protection of 85% of Intelsat's income

since firms were allowed to operate on condition that the services they provided caused

neither technical nor economic hardship to Intelsat.183

Department of State Bulletin, Communications Satellite Systems, 1985.

New York Times, July 26, 1985.

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United States firms providing satellite services overseas encountered additional

restrictions imposed by foreign regulatory agencies which limited their overseas

operation. As a result of these restrictive policies, these companies diverted their efforts

from providing telephone services into operating private communications networks and

providing international television and video services.184 Both markets, particularly the

international television and video market have been the least restrictive of the

telecommunications markets and where private firms have managed to create a niche.

The international television and video market can be distinguished by regional and

international or transoceanic broadcasts. United States firms as well as foreign firms have

found the market for regional broadcasts more profitable and traditionally have formed a

market characterized by fewer restrictions than the telephone service market. As a result,

this market became an area of growth for satellite service providers. The international and

transoceanic broadcasts market, however, was largely controlled by Intelsat which

continued to dominate the television and broadcast market due to its excess capacity, its

market access and its size. Services such as local news media, transmitting news from one

region to another, generally relied on Intelsat services, so fewer providers emerged in this

area.

As a result of Intelsat’s dominance in transoceanic broadcasting, regional

broadcasters tended not to develop the capacity for transoceanic broadcasting. Companies

184 Ibid. p. 29

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entering the market for transoceanic services were often government-owned or had strong

ties to government. This relationship allowed them added privileges in the setting of the

price for the services they offered. The international television and video market

became the avenue through which emerging firms, such as PanAmSat and Orion could

launch their entry into the international satellite market.

PanAmSat

PanAmSat was the first private commercial entity that emerged to challenge

Intelsat’s dominance in the international satellite market. While PanAmSat led the way

for the introduction of separate satellite systems, its survival within the satellite sector

remained dubious. As a result it waged a long and protracted battle both domestically and

internationally to establish its operation. Its battle for survival persisted against what it

perceived as unfair competition, despite its successful presence in the global satellite

markets.

In May 1984 PanAmSat, which is owned by Alpha Lyracom, a Connecticut-based

sole proprietorship, filed an application with the FCC for the establishment of a private

satellite system in Latin America to provide international satellite services between Latin

America and the United States. This application came in the light of President Reagan’s

185 See, United States, General Accounting Office, “ Telecommunications: Competition Issues in International Satellite Communications. Report to the Chairman, Committee on Commerce, Science and Transportation - United States Senate, October 1996, GAO/RCED-97-1,

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1984 declaration that private satellite operators be allowed to compete with the Intelsat

system in global satellite communications. As the first privately-owned international

communications satellite system, PanAmSat was the first commercial entity to officially

challenge the Intelsat monopoly. Prior to the PanAmSat launch, US and foreign

companies used satellites within their borders but no one sought to challenge the Intelsat

monopoly. PanAmSat’s goal was the establishment of international satellites for business

communications and television links between the US, Latin America and Western

Europe. Using its geostationary satellite, PAS I, which had the capacity to beam

television programs, video, audio and data signals to all sites in the United States, Europe

and Latin America, it could simultaneously cany 36 TV channels.

A year after it requested FCC approval, PanAmSat was granted the conditional

approval requested for the construction of its satellites.186 In its bid for approval,

PanAmSat was required to disclose to Intelsat the full range of equipment it planned to

use in its operations and where and how this equipment was to be used. The nations

which would be the recipients of these intended services also had to send documents in

support of the claims made. Intelsat responded to the bid for approval with a request that

PanAmSat demonstrate financial qualification by the end of the year, without which the

approval for operation would not be granted.

This occurred on September 3, 1985.

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After several requests from PanAmSat for extensions for meeting the requirement

of financial qualification, on July 9, 1986, Intelsat’s board of governors rejected

PanAmSat’s bid to launch and operate its satellite system on the grounds that PanAmSat

had failed to fully inform Intelsat of how it had planned to use its 24 transponders.187 The

United States and Peru had provided information for only five transponders that would be

used to transmit video, data and private voice services between the United States and

Latin America instead of twenty-four.188

A year later in April of 1987, Intelsat granted conditional approval for

PanAmSat’s operation of twenty-four transponders, including the five Latin American

transponders between the US and Peru. Six of the 24 transponders were designed for

traffic between Europe and North and South America. The satellite, which was located at

the eastern tip of Brazil, would also handle data, telex and radio communications for the

financial, manufacturing and mining industries. It was also designated to broadcast 36

television channels simultaneously.

187

See “Intelsat Board of Governors Rejects U.S. call for Extraordinary Assembly of parties on PanAmSat Coordination,” Rio De Janeiro, Brazil, June 23, 1986. Requests by PanAmSat for 45-day extensions for meeting the requirement of financial qualification were made on November 21, moving the deadline from December 1 to January 15, 1986. The request was granted by Intelsat on December 12th, 1985. Five subsequent requests for extensions were made and granted on January 21, 1986, March 24, 1986, May 2, 1986, June 18, 1986, and July 3 i f 1986.

iss The San Diego Union-Tribune, “Consortium Rejects U.S. Bid for Satellite”, Thursday July 10, 1986, pg. A-24.

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The battle for entry into the international satellite market was soon followed by

the battle over who would dominate the market. After Intelsat’s approval of PanAmSat, a

series of confrontations between PanAmSat and Intelsat soon surfaced. PanAmSat

accused Intelsat of promoting an international boycott against its satellites by putting up

“bureaucratic roadblocks” that prevented PanAmSat signals from being received in places

where Intelsat had control of the market. Both Intelsat and Comsat vehemently denied

PanAmSat charges, claiming instead that Intelsat had increased PanAmSat’s access to

Intelsat member nations instead of embarking upon a strategy of obstruction.189

PanAmSat also accused Comsat of unfair competition and petitioned the United States

courts to intervene.

In September of 1991, the U.S. Court of Appeals ruled that PanAmSat could

pursue a $1.5 billion antitrust suit against Comsat, alleging that Comsat practiced

predatory pricing and that Comsat had discouraged other signatories from doing business

with PanAmSat. Because Comsat’s action was the result of its role as the US signatory to

Intelsat, a prior court had earlier decided that, because it was an international

organization, Comsat was immune from U.S. antitrust laws. The 1.991 Court decision was

189 Los Angeles Times, November 27. 1988 in Http://web.lexis-nex is.com/universe/document.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. a reversal of the earlier lower court decision, where it concluded that Comsat was not

immune. 190

Additional charges of unfair business practices and obstructions to PanAmSat’s

efforts had also come from outside the United States. Since launching PanAmSat, its

parent company, Alpha Lyracom, has been embroiled in a battle with Entel, the state-run

Argentinian telephone and telegraph cartel and seven independent TV network stations.

The networks desired to be linked to PanAmSat’s satellite.191

Peru had initially chosen the Intelsat system. However, it later decided against

Intelsat, particularly because only a small percentage of Intelsat’s transmitting capacity

was allotted for television broadcasting. That allotment had already been dominated by

Entel who, as Argentina’s signatory to Intelsat, also owned the only microwave grid that

TV broadcasters needed to transmit programs to stations. By restriction of access to the

microwave grid, Entel denied potential broadcasters the ability to transmit programs

using PanAmSat satellites.

In 1985, PanAmSat was successful in luring business away from the Intelsat

network when its parent company Alpha Lyracom, offered Peru the use of a high-

powered video transponder that would cover Peru, Ecuador, Bolivia and Northern Chile

190 See “Monopoly in Orbit,” The Economist, October 26, 1991, p. 19.

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for a mere $1 per year. Despite the many obstructions, by 1995, PanAmSat’s income

managed to rise to $116.1 million, almost doubling from the previous year’s $63.7

million.192

Orion

The second private domestic satellite company to receive both Intelsat and FCC

approval was the Orion Network Systems. Though the first to apply for approval before

the FCC, Orion followed PanAmSat in breaking the 25-year Intelsat monopoly on

international communications between nations. Orion launched two geostationary

satellites to locations above the Atlantic, the first in 1992 and the second in 1993. Its

licenses prohibited telephone calls on the public telephone network.

After a long battle with Intelsat which began in 1983 when it petitioned the FCC

for approval for the provision of voice, data and video services for corporations and

government agencies between the US and the United Kingdom, Orion finally won

approval from the FCC in 1987. Two years later, Orion received an approval from Intelsat

to operate its commercial satellites.193 Its licenses prohibited the use of telephone calls on

the public telephone network.

New York Times, June 16, 1996.

This occurred on June 22, 1989.

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Unlike PanAmSat, which planned to provide services between the United States

and Latin America, Orion was the first firm that attempted to provide services between

nations that were outside of the United States. It was designed to be the first transoceanic

separate satellite system engaging in intercontinental provision of services and as a result

would be in direct competition with the Intelsat market.194 Also unlike PanAmSat which

focused on transmitting television signals through its satellites, Orion concentrated 20%

of its efforts in video and 80% in private telecommunications networks for businesses. It

was therefore expected to cause Intelsat “significant economic harm.” In spite of the

impending threat, the decision was made by Intelsat to grant approval for Orion to operate

after receiving assurances from United States and the United Kingdom that both nations

would remain committed to do business with Intelsat in the long run and that Orion’s

operations would be limited to private corporate networks.193

Factors AffectingCompetition

In spite of PanAmSat and Orion's presence in the international satellite market,

sustained international competition failed to take root within the international

telecommunications market. The failure of competition can be attributed to several

factors. First, Intelsat’s signatories had close ties to their governments. As a result, their

194 PR Newswire Association, Inc., “Intelsat Board of Governors Consults Orion System,” Washington, June 22, 1989.

195 John Burgess, “Rockville Company Rejoices Over Satellite Network Okay,” The Washington Post, July 19, 1989. p. FI. Also Nancy Dunne, “Board of Intelsat Backs Competitors”, The Financial Times (London), June 23, 1989, p. 8.

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governments were willing to protect them at any cost, from outside competition. As in the

instances of the American Satellite Corporation in Jamaica and PanAmSat in Peru, new

firms seeking access to foreign markets were denied access as governments imposed

regulations to prevent separate satellite systems’ access to the local market.

Competitors had to seek permission from domestic licensing bureaus to provide

services to a country. Domestic telecommunications bureaus were entrusted with the

authority to approve applications for use of the specific spectrum of radio frequencies, for

setting up ground stations to send or receive satellite signals or to interconnect with the

domestic telephone system. These bureaus served as an extension to the International

Telecommunications Union Radiocommunications Sector (ITU-R), whose responsibility

it is to allocate radio frequencies and to register radio frequency assignments in the

geostationary satellite orbit in order to avoid harmful interference between radio stations

of different countries. Again, as in the case of Peru, the necessary approvals were not

forthcoming.

Second, the Intelsat signatories were often the only domestic institutions

authorized to grant licenses for the operation of competitive firms. They therefore lacked

the incentive to approve service providers who posed challenges to the existing or future

markets served by the signatories. Signatories had a financial motive to restrict

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competitors’ access to local markets.196 In 1996, seventy one percent of Intelsat’s

signatories were directly responsible for making the decisions concerning licensing,

spectrum allocation and market access, allowing them to restrict or deny licensing of

prospective competitors.197 An additional fourteen percent of the signatories were separate

from but nevertheless related to the licensing bodies and were able to exert some

influence on decisions.198

The third restriction to competition is that, in the event that a separate satellite

system did gain access, there were no guarantees that needed access would continue in the

future for that company. A company getting approval for access for a period of one year,

would not be guaranteed for another, neither would there be any guarantee that other

companies seeking access to that country’s market thereafter would be successful. Each

non-Intelsat company had to negotiate entry into a foreign market to provide global

services each time access was desired, with no guarantee of success. Intelsat’s access, on

the other hand, was automatic and it never needed to negotiate its privileges.

196 United States General Accounting Office, Telecommunications: Competitive Impact of Restructuring the International Satellite Organizations , Report to the Chairman, Committee on Commerce, House of Representatives, GAO/RCED-96-204 p.5.

197 United States, General Accounting Office, k‘ Telecommunications: Competition Issues in International Satellite Communications. Report to the Chairman, Committee on Commerce, Science and Transportation - United States Senate, October 1996, GAO/RCED-97-1, p. 27.

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A fourth factor hindering competition in the telecommunications market was that

separate systems first had to secure agreements from local companies to provide services

after which negotiations with Intelsat for access would take place. Because the

negotiation process was lengthy and time consuming, time delays resulted in heavy

financial losses for separate satellite systems. New companies’ abilities to freely compete

in these markets were undermined by the possibility of denials and delays.

Finally, Intelsat had been the recipient of special advantages that were not

available to its competitors. Intelsat had easy access to financial capital and enjoyed other

special privileges, the most important being exemptions from taxation and easier access

to orbital slots (locations in space). It also enjoyed special immunity from lawsuits. These

advantages gave Intelsat a competitive edge while undermining the survival of new

companies.

COMSAT argued that there were no special advantages given to Intelsat over

competing firms. It noted that the existence of separate satellite systems was itself an

indication that there were few barriers to entry and that Intelsat had no market

dominance.109 Intelsat, COMSAT argued, bore tremendous responsibilities for providing

universal services at nondiscriminatory prices to the international community, especially

to developing nations, thereby posing limitations on its ability to compete in the market.

COMSAT also noted that because Intelsat was an intergovernmental organization, its

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efficiency as an economic entity was greatly undermined since consensus was needed on

all decisions. The organization was thereby impeded in its attempts to respond rapidly to

changes in the market. Intelsat’s competitors disagreed with this stance.200

Restructuring

By 1996 new domestic and foreign companies had surfaced (Tables 4-2 to 4-4)

resulting in the creation of the Alliance for Competitive International Satellite Services

(ACISS). This was a seven-company lobbying group that was created within the United

States to oppose the market advantage that Intelsat possessed.201 Members of the

consortium agreed that in its initial stages Intelsat had served a vital function in creating a

global network. However, they argued that the needs of the satellite sector had changed,

As a result, Intelsat’s preferential treatments - its tax privileges, immunity from lawsuits,

preferential access to radio spectrum and space for satellites - had become a hindrance to

the satellite sector. ACISS was organized to press for a change and to urge a restructuring

of the satellite sector.

One proposal for restructuring called for the elimination of the Intelsat

intergovernmental arrangement. The intergovernmental arrangement has allowed it to

200 Ibid. p.27.

20] ACISS consisted of PanAmSat, Orion Network Systems, Columbia Communications Corporation, Motorola Inc., Odyssey Worldwide Services, Orbital Communications Corporation, TRW and Loral Space and Communications Limited.

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authoritatively allocate commercial benefits such as its tax exemptions and preferential

access to radio spectrum to the organization, thereby resulting in market advantages. For

its opponents, the elimination of the intergovernmental arrangement would also mean the

elimination of benefits that Intelsat received and ultimately Intelsat’s global market

dominance, making it possible for the creation and entry of new firms into the global

satellite market.

Many developing nations had grave concerns about the elimination of the

intergovernmental arrangement. They believed that the arrangement not only allowed the

organization benefits but with it also came the responsibility of ensuring the provision of

basic satellite services to developing nations. As a result, they argued that access to basic

telecommunications services such as telephone using satellites would be threatened in the

absence of Intelsat’s intergovernmental arrangement. Should the intergovernmental

arrangement be relinquished, these states would be unwilling to rely on the private sector

to ensure the provision of these basic services.

A second proposal for restructuring which was also advanced by ACISS, was to

split Intelsat into three companies in order to reduce Intelsat’s size and market

dominance. Under this arrangement, Intelsat would remain an intergovernmental

organization, and create two affiliate companies, the shares of which would be sold to the

public. The two affiliates would focus on improved satellite services, whereas Intelsat

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would focus on basic telephone services, especially for developing nations. The affiliates

would have no special privileges or immunities.

The third proposal for restructuring Intelsat, endorsed by the US government, was

to divide the organization in two entities - an intergovernmental arrangement and an

entity for providing advanced services. The first entity would be the intergovernmental

arrangement which would be 20% owned by signatories. This entity would continue to

focus on basic telecommunications services such as telephone. The affiliate entity would

be privatized, and would concentrate on providing more advanced services such as video

and data. The privately owned affiliate would have no special privileges or immunities.

Business transactions between the two entities would take place as if they had no prior

economic relationship. The affiliate would be subject to competition laws in the countries

in which it operates.

ACISS’s proposal for restructuring was turned down on the grounds that “[t]hat

view does not have any support in the rest of the world.”202 ACISS argued that the

restructuring effort could not be successful unless Intelsat’s large transoceanic capacities

were reduced and countries were willing to accept the new companies. However ACISS,

the United States government and COMSAT all agreed that the market was capable and

202 Statement made by John Mattingly, vice president and general manager of Comsat quoted in Investor's Business Daily, September 12, 1996.

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willing to offer services such as video, data and mobile telephone services and should be

open for such ends.

Conclusion

The transformation of the Intelsat system began in the United States with one

firm, PanAmSat receiving a license to operate and less than a dozen looming in the

background awaiting their approval to operate. Internationally, other firms followed suit.

PanAmSat’s approval set a precedent that paved the way for future transformations of the

international telecommunications satellite industry and that later affected the decisions of

companies such as the American Satellite Corporation which were now able to act as

intermediaries to deliver satellite services for international business transactions.

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Table 4-1 Significant Events in Communications Satellite: 1945 - 1990203

1945 Arthur C. Clark’s article: “Extra-Terrestrial Relays” 1956 First Trans-Atlantic Telephone Cable: TAT-1 1957 Sputnik: Russia launches the first earth satellite 1960 First successful DELTA Launch Vehicle 1960 AT&T applies to FCC for experimental satellite communications license 1961 The start of TELSTAR, RELAY and SYNCOM programs 1962 TELSTAR and RELAY launched 1962 US Communications Satellite Act 1963 SYNCOM launched 1964 INTELSAT formed 1965 COMSAT’s Early Bird — the first commercial communications satellite 1969 INTELSAT-III series provides global coverage 1972 AN IK: The first Domestic Communications Satellite (Canada) 1974 WESTAR: The first US Domestic Communications Satellite 1975 INTELS AT - IV A: 1975 RCA SATECOM: The first operational body-stabilized communications satellite 1976 M ARIS AT: The first mobile communications satellite 1976 PALAPA: Indonesia launches domestic communications satellite 1979 INMARSAT formed 1988 TAT-8: The first Fiber-Optic Trans-Atlantic telephone cable

2 0 3 Source: David J. Whalen, “Communications Satellites: Making the Global Village Possible,” http://www.hq.nasa.gov/office/pao/History/satcomhistory.html.

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Table 4-2: The United States Domestic Satellite System204 PanAmSat Orion Network Systems Columbia Communications Corporation Motorola Inc. Odyssey Worldwide Services Orbital Communications Corporation TRW Iridium Globalstar Design Publishers, Inc. Dialink Satcoms, Ltd WESTAR GTE

Table 4-3: Domestic Satellite Systems in the Americas205

Satellite Systems Nation

Anik Canada Solidaridad Mexico Hispasat Spain Nahuelsat Argentina Brazilsatk Brazil

204 By 1995 there were a total of 30 US operational domestic satellites authorized by the FCC. There are the top firms in operation.

Source: Comsat’s written comments on the GAO Draft Report: “Telecommunications: Competitive Impact of Restructuring the International Satellite Organization,” p. 29.

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Satellite Systems Nation

EUTELSAT Pan-European Astra Luxembourg Telecom France Italsat Italy Turksat Turkey DFS-Kopernicus Germany Hispasat Spain TV SAT/Tele-XThor Nordic countries

Table 4-5: Regional Satellite Systems207

Satellite Systems Nation

Arabsat Pan-Arab Amos Israel Optus Australia Asiasat (Private) Apstar (Private) Chi nasat/Dongfangong China In sat India Koreasat Korea Me as at Malaysia Palapa Indonesia/Asean countries Rimsat Tonga Thaicom Thailand BS Japan J-SAT Japan N-STAR Japan SCC/Superbircl Japan

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Competing satellite system Intelsat Investors

Astra British Telecom Telecom France Telecom Optus Cable and Wireless Asiasat Cable and Wireless Hispasat Telefonica DFS-Kopernicus Deutsche Telecom Palapa Deutsche Telecom Solidaridacl Telecom Mexico Brazilsat Embratel

Ibid

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CHAPTER FIVE

THE JAMAICAN TELECOMMUNICATIONS SECTOR

Introduction

The rapidly transforming global satellite market of the 1980’s had a cascading

effect on the domestic telecommunications market, and as international competition

increased, so did concerns for the viability of these domestic sectors. In the decade

between 1980 and 1990, two patterns began to emerge in the revenue of the Jamaican

telecommunications sector. First, the revenue in the international component of the

sector began to escalate, while simultaneously, a pattern of decline of revenue in the

domestic sector, set in. The decline, which began in 1980, continued until 1989, the

period of the Digiport negotiations. It resulted in more than a 50% reduction in the

income accruing to the domestic component of the sector. [Fig 5.1]

The concerns for the viability of Jamaica’s domestic telecommunications segment

emerged from both Cable and Wireless and the Ministry of Public Utilities and

Transport (MPUT) - both sought an immediate solution to the decreasing revenue in the

domestic component and the possible impact on the continued provision of domestic

services. The Ministry's solution to the decline in revenue stream, proposed in 1985,

was a policy of cross-subsidization, whereby income generated from the international

component was transferred to the domestic component. This transfer was intended to

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offset the costs of the provision of services in the domestic component. 209 The cross

subsidization policy was adopted in 1989.

The restructuring of the Jamaican telecommunications sector initiated in 1985 by

the Ministry of Public Utilities and Transport (MPUT) to address the decline in revenue

began shortly after several significant global events; most notably, the opening of the

global telecommunications market to competition, and the action of the global satellite

regime, led by Intelsat, to allow limited competition in satellite services. The

restructuring consisted of three stages: a) the privatization of the sector, b) the merger

of domestic and international operations under a single entity - Telecommunications of

Jamaica (TOJ), and c) a revised regulatory regime that would solidify Cable and

Wireless’ control of the sector. It ultimately resulted in the elimination of all

competition within the sector, and subsequently, it led to the closing of the sector to

international competition. Moreover, Jampro’s attempt to liberalize the sector using the

services of the American Satellite Company for the Digiport was defeated, as it

represented a threat to the state’s restructuring of the sector.

Several key actors facilitated the restructuring the Jamaican telecommunications

sector. These actors were Cable and Wireless, Jamintel, Jamaica Telephone Company,

Telephone of Jamaica, the Ministry of Public Utilities and Transport, the National

Investment Bank of Jamaica (NIBJ), and Industrial Commercial Development. Cable

and Wireless International initially supplied international services but later supplied all

209 Spiller and Sampson, p. 66.

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telecommunications services. The Jamaica Telephone Company and Jamintel were

domestic entities in partnership with Cable and Wireless to provide domestic and

international services respectively. The Industrial Commercial Development was an

indigenous firm with ownership shares in the telecommunications sector. The stages of

the restructuring were conducted under the auspices of the National Investment Bank of

Jamaica.

This chapter will begin with an examination of the historical evolution of the

telecommunications sector in order to demonstrate how it progressed from its previous

use of multiple providers to that of the single Cable and Wireless monopoly. Secondly,

it will examine the domestic and international economic contexts that impinged on the

state-directed restructuring of the sector and which resulted in Cable and Wireless’

emergence as the dominant supplier of the sector. Thirdly, the chapter will look at the

impact of the restructuring on the Digiport negotiations and Jampro’s decision to use the

American Satellite Company, a competitive non-Intelsat satellite system. And finally,

the chapter will examine the roles played by these actors in the restructuring of the

sector in order to determine the causes of restructuring and its effects on both the

liberalization of the sector and the Digiport negotiations.

The chapter lays the foundation for explaining why Jamaica failed to liberalize

its services in satellite technology. The creation of new telecommunications firms and

the establishment of the separate satellite systems policy of both the U.S. and Intelsat

posed a potential threat to the viability of Jamaica’s telecommunications sector, which

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led to the state’s decision to eliminate competition. Germane to the closing of

Jamaica’s telecommunications sector to competition was the new cross-subsidization

policy, which involved its full restructuring. Cross-subsidization was designed to rescue

the sector from the diminishing returns from the provision of domestic

telecommunications services. Under the new restructuring agreement, all attempts to

liberalize the sector using non-Intelsat satellites would be eliminated.

The History of Jamaica’s Telecommunications Sector

The Jamaica telecommunications sector, which began in 1870 under the colonial

regime of Great Britain, consisted of both a domestic and an international component.

The first international telephone was installed that same year by the state-owned West

India and Panama Telegraph Company (WI&PT), which later was renamed Cable and

Wireless. Because West India and Panama Telegraph Company (WI&PT) and Cable

and Wireless were imperial operations, Jamaica’s relationship with the companies was

an intrastate relationship, which changed in 1962 at the onset of Jamaica’s

independence.210

During the colonial period, the domestic segment of the sector had been served

by a succession of monopoly telecommunications providers. In 1892, the Jamaica

Telephone Company was incorporated to provide services once provided by the West

India and Panama Telegraph Company (WI&PT). Its operator was the British Telephone

210Pablo T. Spiller and Cezley I. Sampson, “Telecommunications Regulation in Jamaica” in Brian Levy and Pablo T. Spiller eds. Regulations, Institutions and Commitment: Comparative Studies of Telecommunications (New York: Cambridge University Press, 1996), p. 45.

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and General Trust (T>), Jamaica’s first telecommunications service provider and the

majority shareholder in the Jamaica Telephone Company. It provided services on a non

exclusive basis until 1925 when it received its forty-year exclusive license to operate in

the capital area of Kingston and St. Andrew. The All Island Telephone System provided

services for the rest of the island under the ownership of the Jamaica Post Office.

In 1945, the Jamaica Telephone Company acquired the All Island Telephone

System, resulting in its provision of services to the entire island. Telephone and General

Trust (T>) became the provider of services to the domestic component. It received a

forty-year exclusive right to provide such services under the All-Island License, which

stipulated that the provision of domestic services would be under private ownership and

that there would be a “fair” as well as an “attractive” rate of return.211 Jamaica

Telephone Company operated under this agreement until 1966. Prior to this period, the

telecommunications sector consisted solely of telephone and telegraph services, and had

experienced a “modest but continued growth” in services.212

Shortly before the nation’s independence from Britain in 1962, T>

announced its refusal to continue to invest in the Jamaica Telephone Company’s

21'Spiller and Cezley I. Sampson p.39. See also Alvin G. Wint, “Pioneering Telephone Privatization: Jamaica,” in Ravi Ramamuti, ed. Privatizing Monopolies: Lessons From the Telecommunications and Transport Sectors in Latin America. (Baltimore: Johns Hopkins University Press. 1996), also p. 63.

212Spiller and Sampson, p. 39.

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operation in the domestic component because of uncertainties in both the market as well

as the in the newly independent political regime. After independence, T> began

negotiations to renew its license. These negotiations lasted three years and ended in

1966. T>’s unprofitable operation in Jamaica resulted in the sale of 50% of its

shares in the Jamaica Telephone Company to a Canadian holding company, the

Continental Telephone Company, which was contracted to provide domestic services

and to increase existing levels of investment in Jamaica’s telecommunications sector.

Continental’s expectations, however, were greatly inflated, and the company soon

suffered extensive losses from which it never recovered.213

The sector’s instability extended beyond its service providers to its regulatory

framework. The post independence period saw a change in the sector’s regulatory

regime: from a system of ad hoc and temporary regulatory boards, to one replaced by the

permanent and independent Jamaica Public Utilities Commission in 1966. The

Commission issued new licenses to the Jamaica Telephone Company, and vowed to

introduce a “Jamaicanization” plan designed to increase the percentage of indigenous

ownership of the sector that would be implemented by the year 1971.214 However, by

1975, the Commission was disbanded with the nationalization of the Jamaica Telephone

2l3Ibid. pp. 49-50.

214Ibid.

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Company. It, nevertheless, later resurfaced as the Ministry of Public Utilities and

Transport in 1976.215

The Continental Telephone Company made various attempts to extricate itself

from its troubled performance, making several petitions to the utilities commission for a

rate increase. Each petition was met with opposition from both the regulatory

commission and the Seaga regime. In 1975, when the Manley regime assumed power,

the prime minister undertook the full nationalization of the domestic sector - a decision

that was welcomed by Continental Telephone. It availed itself of the opportunity to sell

all its holdings to the state, thereby initiating the process of the nationalization of

domestic telecommunications in 1975. These domestic holdings remained nationalized

until 1987. Cable and Wireless continued to maintain control of 51% of the shares in

the international component.

Negotiations to privatize all domestic holdings began in 1985 with the return to

power of a new government headed by Seaga, and under the influence of the

privatization recommendations of the IMF Structural Adjustment Program of 1982.

Negotiations began two years later and Cable and Wireless emerged as Jamaica’s sole

provider of telecommunications services after it had acquired the majority of

government shares in the domestic component. All other providers of domestic service

had since departed, leaving Cable and Wireless the sole investor in both the domestic

2l5Ibid. p. 56.

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and international segments.

While the domestic component repeatedly changed service providers, the

international component, by contrast, was characteristically more stable, with Cable and

Wireless as the component’s only provider of international telecommunications services

since its inception in 1870. Unlike the domestic component, which initially was more

profitable and more regulated, the international component of the sector was relatively

less regulated. It operated without a license, with minimum to no regulation, and with a

fixed price system.216

In 1961, in the shadows of Jamaica’s independence, Cable and Wireless

successfully negotiated with the soon-to-be newly independent state its first exclusive

license to provide external services under the Radio and Telegraph Control Act. Prices

remained low and continued so until the late 1970s. Cable and Wireless increased its

investments in the segment with the addition of an earth station and the development of

its satellite technology. In 1968 it renegotiated with the government and received a

twenty-year extension of the 1961 license that allowed it to operate until 1988.217 Cable

2l6Ibid, p. 60

2l7Ibid, p. 63.

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and Wireless operated the international segment jointly with the state even as the

domestic component remained completely nationalized.218

In 1971, Cable and Wireless began negotiations with the state for the creation of

the nation’s first international telecommunications service provider. Jamintel was

created as a joint venture between Cable and Wireless and the Jamaican government in

which Cable and Wireless owned 49 percent of the shares and the government owned

51 percent and operated as a separate entity from the domestic service provider. The

Jamaica Public Utilities Commission licensed Cable and Wireless under this new

arrangement. In addition, the government assumed the cost of the international

telecommunications operations that had formerly been wholly owned and operated by

Cable and Wireless. By 1975, the international segment experienced yet another

milestone with the introduction of international direct dialing. This milestone triggered

a tremendous boom in Jamintel’s profit levels.

Cable and Wireless and the Jamaica Telecommunications Sector

Jamaica’s telecommunications sector has endured many changes since Jamaica’s

independence in 1962. However, the presence of Cable and Wireless in the international

component has remained a constant since 1870. Its presence shaped and conditioned

Jamaica’s modem telecommunications sector. First, Cable and Wireless’ presence was

proved profitable for its operations in the domestic segment. Even as the state

218 W int p.50.

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nationalized the domestic component, Cable and Wireless continued to hold 51% of the

shares of the international component, maintaining control over Jamintel during the

state take-over of the domestic component. By 1987, when the state privatized the

sector, Cable and Wireless took the opportunity to solidify its control over the entire

telecommunications sector through the acquisition of the majority 80% of the shares of

both the domestic and international components. Upon privatization of the sector, Cable

and Wireless renegotiated a favorable 25-year agreement in 1987.

In addition to the continued rise in revenue from international

telecommunications, three factors have led to Cable and Wireless’ presence and

dominance in Jamaica’s telecommunications sector. The first was Jamaica's regulatory

regime, from which Cable and Wireless benefited greatly; the second was Cable and

Wireless’ ability to minimize the risks involved in operating within the Jamaican

economy; and the third was the strategic importance of Jamaica, which allowed the

company the opportunity to fulfill its goals for the Caribbean region.

The Sector’s RegulatoryClimate

The telecommunications sector’s regulatory and pricing regime consisted of

three features: a) the negotiation of license agreements, b) the regulation of operations

within the sector; and c) the creation of incentives by the state that encouraged corporate

expansion within the sector - and which time and again proved favorable to Cable and

Wireless. The licensing of telecommunications operators was central to the operation of

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the sector. The speed with which the state awarded the operator its license and the

duration and conditions of the license determined the nature of the relationship between

the operators in the sector and the state. It affected the level of involvement the operator

elected to undertake as well as the risks it was willing to assume. Cable and Wireless’

license negotiations had been speedy, generous and favorable. Dunn and Gooden

contend that the terms of the negotiations between Cable and Wireless and the Jamaican

government were “unduly generous.” 219

The state’s generosity toward Cable and Wireless was evident in both the 1968

and 1988 negotiations in which the company was granted a 20-year monopoly over all

aspects of domestic telephone operations in the latter instance, and control over the

international component in the former. In addition, it was granted other sub-licenses to

operate in the areas of external telecommunications, wireless telephone, telegraph, telex

and teleprinting services.220 Dunn and Gooden note that globally, the average length of

a license is approximately 7 to 10 years, a period that allows a company to recover its

investments. Furthermore, the Ministry also allowed Cable and Wireless the right to

install and to approve the installments of all attachments to the network by any of its

users, and the right to levy tariffs or fines for any unauthorized connections. Cable and

2i9Hopeton S. Dunn and Winston S. Gooden, “Telecommunications in Jamaica” at http:/www.vii.org/papers/jama.htm. p. 2.

220Ibid.

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Wireless’ license also guaranteed a return rate of between 17.5 and 20% of assets that

were revalued to adjust for inflation.

Additionally, Cable and Wireless received favorable treatment with regards to

the protection and regulation of operations within the sector. McCormick argues that

the regulatory regime in Jamaica, as well as in other developing nations, can best be

described as lacking both the power to exert regulatory control over the sector and the

presence of any well-constituted set of regulatory policies.221 Spiller and Sampson also

note that the Public Utilities Commission, which was charged with the responsibility of

regulating the sector, had, on occasion, faced great challenges due to the company’s

accounting procedures. These accounting procedures, they argue, were “designed to

facilitate control by the holding company rather than by the regulators.”222

The state’s regulatory regime facilitated Cable and Wireless’ preferential access

to investment opportunities within the sector, from which it benefited significantly.

Moreover, Ministry inducements resulted in Cable and Wireless" increasing investment

levels that led it to expand its operations in the sector. The Ministry also guaranteed

Cable and Wireless exclusive access to investment opportunities, as evidenced in the

1988-privatization negotiations, which facilitated the state transfer of its ownership of

221 Patricia McCormick, “Telecommunications Privatization Issues in Jamaica, “ in Telecommunications Policy. Vol. 17, No. 2, March 1993, p. 151.

222Spiller and Sampson, p. 54

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shares in the domestic component, and its portion of shares owned in the international

component, to Cable and Wireless. During these negotiations, Cable and Wireless was

the only private entity invited to the negotiating table. Once there, the terms the

company received added up to enormous benefits - benefits that Wint argues were

tantamount to a government “giveaway” of shares to Cable and Wireless.223 These

“giveaways” were the contractual arrangement between Cable and Wireless and the

state, in which Cable and Wireless included a twenty-five year monopoly agreement

instead of the seven to ten year norm, with an added benefit of the guarantee of return of

between 17% to 20% on assets, among others. These “giveaways,” Wint further states,

were the result of the state’s weak bargaining position.224

Familiarity with Jamaica and the Risks Involved in Business Operations

Cable and Wireless’ longevity in Jamaica’s telecommunications sector gave it a

familiarity with the risks involved in its Jamaica operations. Its longevity included its

ability to survive a period of nationalization, emerging as the only supplier in both

domestic and international operations when the sector was later privatized. However,

while the domestic component was nationalized, Cable and Wireless maintained

majority control of the international component, which remained privatized. It operated

in partnership with the state during this period, and its profits in the international

component increased while the component expanded.

22 Wint. p. 68.

224Ibid, p. 68..

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When the domestic component was privatized in 1989, Cable and Wireless

acquired majority control of that component as well, making it the only supplier in the

sector. The company had outlived all other foreign suppliers. Jamaica began to rely on

Cable and Wireless for its technology, capital and expertise to modernize the country’s

aging telecommunications infrastructure, while the company, in turn, enjoyed

unrestrained access to the domestic telecommunications market.22'’ It experienced a

favorable economic climate in which both its needs and the needs of the state were

adequately met, compared to the less than viable operations of its predecessors T>

and The Continental Telephone Company.226

The Sector’s Strategic Importance

After five years of state ownership of the domestic telecommunications

operations under the Manley regime, the Seaga regime assumed control of the

government in 1982, touting a privatization agenda.227 Moreover, Seaga became the

recipient of the IMF’s Structural Adjustment Program from 1982 to 1987, which was in

harmony with his administration’s privatization agenda. Privatization negotiations

began in 1985 and ended successfully in 1987 with the sale of state shares to Cable and

Wireless. Seaga’s privatization agenda allowed Cable and Wireless to acquire

22-Tbid.

226lbid, p. 57.

22,Wint p. 50; McCormick p. 151.

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controlling interests in the sector, resulting in the shift of 100 percent of state ownership

of the domestic component to the private sector. Thus, state ownership of the domestic

component shifted from 100% of the telecommunications shares in 1987 to 0%

ownership by 1990.

The sale in 1987 of Jamaica’s domestic segment to Cable and Wireless signaled,

for the first time, Cable and Wireless’ control of both the domestic and international

components of the sector. Cable and Wireless gained control of JTC and Jamintel and

was in a position to realize the company’s strategic plans for the region. As Cable and

Wireless acquired shares in Jamaica’s telecommunications sector, it simultaneously

undertook a multi-year program to acquire telecommunications markets across the

globe.

Beginning in 1986, the company purchased shares in the telecommunications

sectors of Barbados, St. Kitts and Nevis in the Caribbean, and as well as in the South

Pacific, Sub-Sahara Africa, and in the Middle East.228 Wint maintains that Cable and

Wireless’ acquisition of Jamaica’s telecommunications sector was central to the

company’s vision for the region and was consistent with its initiatives throughout the

globe. Cable and Wireless’ domestic and international acquisitions in Jamaica, Wint

argues, would complement its other acquisitions in the Caribbean, making it well suited

228 Wint p.60.

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as a regional hub.229It was this strategic interest in the Caribbean that, according to Wint,

was the driving force behind Cable and Wireless’ acquisition and control of the majority

of the shares in the sector.230 Jamaica’s market size was therefore, not an indicator of its

importance to Cable and Wireless.231

While Wint’s analysis demonstrates a clear interest on the part of Cable and

Wireless in Jamaica’s telecommunications sector, his conclusion that Cable and

Wireless’ interest in Jamaica was more strategic than economic is rather dubious. The

period of 1985 to 1987 when Cable and Wireless strategically sought to acquire

holdings in Jamaica from the privatization of the sector was also the period in which the

Digiport Project had its genesis. During this period, Jampro had initiated a feasibility

study, which indicated the revenue potential of the establishment of an offshore

information processing industry. This industry, using telecommunications satellite

technology, would have the potential of transcending the local market to reach its

multinational clientele worldwide, extending to corporations located within the

industrialized nations. The income-generating potential of Jamaica’s information-

processing industry was clearly established.2’2 Cable and Wireless’ interest in providing

229Ibid.

230Ibid.

231 Ibid.

232 See “Proposal for the Provision of Enhanced Telecommunications Services for Jamaica’s Free Zone,’’ (JA), 1986.

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services for the Digiport project and its concerns about competition from the American

Satellite Company clearly demonstrated economic concerns more than strategic

considerations.233

Cross-Subsidization and the Political Economy of the Jamaican

Telecommunications Sector: 1980-1990

Figure 5-1: Real revenue per line JTC and Jamintel, 1972-91

12 H

- 0.8

- 5 CT> OI

0.2

1 9 7 21974 19761978 1980 1982 1984 1986 1 9 6 8 1 9 9 0

1NTL REV/UNE DOMESTIC REV/UNE TOTAL REV/UNE INTI CALLS/LINE

Source: Spiller and Sampson p. 67

-’-'Letter to the Jamaican Prime Minister dated Apri 1 15, 1986 located at the Jampro Archive (JA) in Kingston, Jamaica. West Indies.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 162

From 1980 until 1990, two trends began to emerge in the revenue of Jamaica’s

telecommunications sector. The first trend was the rapid increase in revenue in the

international segment, reflecting more than a 100 percent increase over that of the 1980

level. [Fig. 5-1] It began with close to $J 4,000 per line in 1980 and increased to $J

8,000 per line in 1989. Net profits in real income for the provision of international

services increased significantly from less than $J 50,000 in 1981 to $J 200,000 in 1989.

[Fig. 5-2]234 Thus, the steady increase in profits from 1980-1989 in the international

component, made it central to the survival of the sector as a whole.

This boom in the sector was attributed to two domestic actions.235The first was

the introduction of international direct dialing in 1977 which resulted in an increase in

international long-distance calling, with calls more than doubling between 1980 and

1989. [Fig 5-2] With the exception of the period between 1984-1985 when the level of

international calls remained constant, growth in international direct long-distance calls

continued virtually uninterrupted for the remainder of the decade, albeit at a reduced

rate of growth after 1984. [Fig. 5-2]

234 For total number of lines see Appendix VII: Number of Main Lines (Thousands)

23\Spiller and Sampson, pp. 65-71.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. without prohibited reproduction Further owner. copyright the of permission with Reproduced Source: Spiller and Sampson p. 68 p. Sampson and Spiller Source:

Profits in Real 1991 J$ (000) (Thousands) 250 300 200 100 - X - 1973 GROSS PROFITS PROFITS GROSS i:52 aitlsTtlPois 1973-91 Profits, Total Jamintel’s 5-2 Fig: 1975 1977 —I— —I— NET NET 1979 PROFITS PROFITS Perpetual Inventory Model Inventory Perpetual 1981 1983 NET AFTER-TAX AFTER-TAX NET 1985 1987 - S - IN T I I T IN - S - 1989 CALLS 163 1E3 1E2

International Calls (in Logs 1972=100) 164

The second factor that added to the growth of the international segment was Prime

Minister Seaga’s reversal of the former Prime Minister Michael Manley’s “controversial

socialist policies.”2'’’6 These policies included Manley’s decision in 1976 to establish

diplomatic relations with Cuba during his visit to Cuba. Castro subsequently visited

Jamaica a year later, and the reciprocal visits resulted shortly thereafter in an influx of

Cuban doctors to provide medical services to Jamaica. Other controversial Manley

policies included the nationalization of the bauxite and telecommunications sectors, a

land reform policy, which consisted of the expropriation of lands and businesses

without compensation, and a controversial Crash Program where transfer payments

were made to large numbers of individuals. 237 Manley’s policies led to the flight of both

domestic and foreign capital from the nation, further intensifying the pressure from the

International Monetary Fund and the World Bank to liberalize the Jamaican economy.

The result of the flight of capital from Jamaica was the involvement of the IMF in

Jamaica’s economic affairs. The flight had produced a strain on the nation’s balance of

payment reserves and the fiscal budget of the Manley regime, increasing the pressure for

236 Ibid, p. 42.

237Ne!son, W. Keith and Novella Z. Keith. The Social Origins of Democratic Socialism in Jamaica (Philadelphia: Temple University Press, 1992) p. 260. The Crash Program was an employment creation program where opportunities were created for the society's poorest through the cleaning of road embankments and gullies, roads and buildings maintenance, and some construction projects.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. 165

reform from the IMF.238 Seaga’s electoral victory and his determination to reverse

Manley’s policies began a flow of new and increased investment back into the

telecommunications sector. Segments of the business community which had fled to the

United States during the Manley regime for fear of losing their businesses, returned to

Jamaica, their fears now relieved. Thus, renewed confidence resulted in increased

investments in many areas of the economy including the telecommunications sector, and

increased telecommunications revenues at the start of the decade.239 This trend,

however, would not continue.

While revenue from the international service increased continuously, revenue

from the domestic segment experienced a downturn. In 1980, revenue from the

domestic component, which had increased by 50 percent over the 1977 level, began to

experience a sharp reduction in income - which was in direct proportion to the

increasing flight of capital that was taking place during the same period. This reduction

continued until 1989 where it rested at less than 60 percent of the 1980 level. [Fig. 5-1]

Income from domestic services declined from $J 6,000 per line in 1980 and continued

steadily downwards to approximately $J 3,000 per line in 1989. In 1984, for the first

time in the sector’s history, revenue from domestic services fell and continued to fall

below that of the international component [Fig.5-1], primarily due to outmoded

238 Wint, p. 53.

239Ibid.

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equipment unable to meet the segment’s demands.240 The continued decline in income

in this segment foretold a potential disruption in the segment’s ability to continue

providing domestic services. It led to the proposal of a cross-subsidization measure that

would offset declining revenue in the domestic component with revenue from the more

vibrant international segment.

Figure 5-3: Jamaica Telephone Company’s gross and net profits, 1970-91

1991 Jamaican Dollars

600000

500000

400000

200000

100000

-100000 1970 1974 1976 19S0 19821972 19S4 1988 1990

—st—GROSS PROFIT —i— NET PROFIT AFTER-TAX PROFIT

Source: Spiller and Sampson p. 69

240 NT IA Leads Effort: Jamaica to Get Telecommunications Development Recommendations Today, May 9, 1986, in Communications Daily, Television Digest, Inc.

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The Cross-Subsidization Measure

The proposed cross-subsidization measure was designed, and depended on, the

successful negotiations and implementation of three prerequisite steps - with no

guarantee that under separate ownership of domestic and international services, the

providers of international services could be relied on to consistently transfer the needed

revenue to the providers of domestic services. Thus, the first step in cross-subsidization

was the merger of the international and domestic operations of Jamintel and JTC under

a single entity that would facilitate the transfer of state shares to the private sector; the

second was the privatization of the sector to comply with IMF structural adjustment

mandates; the third was the establishment of the necessary regulatory framework that

would guarantee Cable and Wireless monopoly control of both segments. The new

regulatory regime would ensure that income from both domestic and international

components would not be diverted to the emerging competitive international suppliers

that resulted from the new international separate satellite policy. All three steps

constituted the restructuring of Jamaica’s telecommunications regime, which was

instituted in 1987 in order to facilitate the new cross-subsidization arrangement.

The Merger of theJamaica Telephone Company and Jamintel

The first step in the cross-subsidization scheme was the merger between JTC and

Jamintel. Negotiations for the merger began in 1985 between Cable and Wireless and

the Jamaican government through its agent, the National Investment Bank of Jamaica

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(NEBJ), the autonomous quasi-governmental body headed by Mayer Matalon.

Negotiations were designed to bring together under one entity, Jamaica’s state-owned

domestic component and its international component, which was majority-owned by

Cable and Wireless. The process began with the creation of a holding company,

Telecommunications of Jamaica, TOJ, which was chaired by Matalon, who also served

as the chairman of the domestic service provider JTC. 241 Negotiations successfully

ended on May 19, 1987, with an agreement between the government, Cable and

Wireless, and the new entity, Telecommunications of Jamaica (TOJ).

As a result of the negotiations, TOJ was incorporated as a private company that

would serve as the holding company of both JTC and Jamintel. The two entities turned

over their shares to the new TOJ, and in return, they received shares in the newly

formed TOJ. Under the merger agreement, both JTC and Jamintel became wholly

owned subsidiaries of TOJ. The state agreed to divest itself of any remaining shares it

still held in either of the two pre-existing companies. New regulatory procedures for

licensing and price setting were set into place. The Board of Directors of TOJ

established a date of April 1, 1991, in which all aspects of the merger would be

completed. The Board stipulated that the merger was designed to create greater

efficiency and that TOJ would be the coordinator of different functions which prior to

the merger had been handled separately by the individual firms.

24lWint. p. 55.

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The Privatization ofthe Jamaican Telecommunications Sector

The second step in the cross-subsidization scheme was the privatization of both

Jamaica Telephone Company and Jamintel in which the state-owned shares in the newly

created TOJ would be transferred to Cable and Wireless. Privatization was more than

the mechanism through which cross-subsidization would occur. This solution also

represented the method that met the approval of the international community to address

Jamaica’s poor economic performance. When Seaga was elected Prime Minister in

1981, the new administration’s first challenge was to address the nation’s economic

concerns.242 These concerns included escalating oil prices, high importation of consumer

goods, escalating flight of capital, high debt obligations and declining bauxite and

agricultural revenues on which the nation very heavily depended. The new regime also

encountered an increased budget from the social programs established under the Manley

regime.

As a result of the nation’s poor economic performance, the IMF had proposed a

comprehensive plan of economic restructuring aimed at increasing competition, the

reduction of the public sector in some areas, and a reduction in the national deficit.243

These prescriptions were included in the IMF Structural Adjustment Program of 1982-

242Seaga began serving in 1982.

243 McCormick, p. 156.

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1987 as a precondition for future IMF structural adjustment loans.244 At the heart of this

proposal was the privatization of industries that had been nationalized under the Manley

regime. Other IMF measures included the removal of price and wage controls, foreign

exchange controls, food subsidies, tariffs, and extensive financial reforms. To address

the problems in the Jamaican telecommunications sector, the IMF prescribed a

mandatory privatization program, which Seaga accepted. Seaga’s privatization endeavor

was designed to reverse the nationalization policies of the previous Manley regime in

order to restore economic performance to previous levels.

The first act in the privatization process, after the creation of TOJ, was the transfer

of shares to the private sector, following a prescribed formula of 80% / 20% indigenous

/ foreign ownership that was based on a post-independence decision to ‘Jamaicanize’

the sector. The formula required that Cable and Wireless control a maximum of 20% of

the shares. However, at the conclusion of the privatization negotiations, the state

elected to digress from its “Jamaicanization” goal, opting instead for a larger foreign-

control of the sector.

The privatization began in July of 1987, when Cable and Wireless received its

first 20% of state-owned shares. By October of that year, the state transferred an

additional 19% of the shares to Cable and Wireless, bringing its shares to 39%, with the

state maintaining the remaining 61%>. In September of 1988, in accordance with its

244lbid.

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“Jamaicanization” policy, the goal of which was to increase indigenous ownership, the

state transferred 21% of its total shares to the locally owned Industrial Commercial

Development (ICD), the largest non-financial private company that was listed on the

Jamaican Stock Exchange, and which was owned by Eli Matalon, brother of Mayer

Matalon. The state continued holding 40% of the total shares, while Cable and Wireless

maintained 39%. With this proportion, the state continued to hold the largest interest in

the sector.

In July of 1989, the state sold an additional 20% of its totally held stock to Cable

and Wireless, which at that point assumed the controlling interest in the sector, its

stocks totaling 59%, and the state’s, 20%. In November of 1990, the state disbursed the

remaining 20% of its shares to Cable and Wireless, bringing Cable and Wireless’ total

to 79% of the total shares and 21 % to indigenous, that is, Jamaican ownership. Clearly,

the remaining percentage of Jamaican ownership of the sector reflected a reversal of the

previously stated “Jamaicanization” objective.245

Moreover, as the state privatization of the telecommunications sector and the

newly established Digiport project was being negotiated, Cable and Wireless was

simultaneously successfully negotiating with the state for the exclusive provision of the

project’s satellite services as Intelsat’s signatory. Cable and Wireless' success was

24riHopeton S. Dunn and Winston S. Gooden,“Telecommunications in Jamaica” at http:/www.vii.org/papers/iama.htm.http://wvvw.vii.org/papers/jama.htm. p. 3.

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sealed with the purchase of 35% of the shares in the Digiport project. AT&T, the U.S.

signatory to Intelsat, was invited to acquire 35% of the total shares while the remaining

30% was acquired by TO J.246 Cable and Wireless and TOJ became the majority owners

of the project, making Intelsat, rather than the American Satellite Company, the supplier

of satellite services to the Digiport.

Monopolization and Regulatory Oversight

The third step taken by the state in the cross-subsidization scheme was the

establishment of the new regulatory framework. In 1987, when the merger between the

domestic and international components under TOJ was finalized, the Ministry of Public

Utility and Transport issued a new license for TOJ’s operation in compliance with

Jamaica’s Telecommunications Act. This license guaranteed the company a 25-year

monopoly for the provision of both domestic and international services. Jamaica

Telephone would exclusively provide domestic telephone services, while Jamintel

would exclusively provide international services. The Ministry assumed the role of

sole regulator of the sector. Its primary task was to end competition in the sector.

At the issuance of these licenses, Jamaica Telephone and Jamintel were each 80%

owned by Cable and Wireless and 21% owned by Industrial Commercial Development

Ltd. The new license barred the participation of interest groups from decision-making

246McComnick, p. 152.

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in the sector, a privilege which had been granted under the previous license.49 This new

arrangement ensured the success of the new cross-subsidization scheme given that the

American Satellite Company, and any other operator that threatened the sector’s ability

to generate a profit, were restricted, thus, making all profits from the provision of

international services available to TOJ for subsidization of the domestic component.

Jamaica’s decision to eliminate competition in the telecommunications sector

came at a pivotal time in the history of the international satellite system. In 1987, the

year the restructuring began, Intelsat granted conditional approval for PanAmSat to

operate its twenty-four transponders for provision of services to the U.S. and Peru. This

action broke new ground for the international satellite system, creating a more

competitive international environment. Soon other firms such as Orion followed suit,

creating a niche for companies such as the American Satellite Company that emerged as

intermediaries or brokers for the new emerging satellite companies.

Cross-subsidizationand its Discontents

Spider and Sampson note that the shift in the state’s policy from its original goal

of indigenous ownership to the disbursement of state-owned shares to Cable and

Wireless was due to “strong fiscal and foreign exchange pressures” in 1988 to 1989.39

Instead of offering the shares to the local business enterprises as the post-independence

"Spider and Sampson p. 40.

"Spider and Sampson, p. 77.

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‘Jamaicanization’ policy of 1966 mandated, the state instead opted for the wholesale

distribution of its shares to Cable and Wireless.40 Spiller and Sampson argue that the

nation’s economic crisis, coupled with its demand for foreign exchange, made the sale

of shares to Cable and Wireless more desirable for addressing the issues with which the

nation was faced, than the planned indigenous ownership of the telecommunications

sector Cable and Wireless possessed the needed finances and foreign exchange. The

state depended on Cable and Wireless for the needed foreign exchange, capital,

technology, and entrepreneurial leadership. That dependence was, therefore, a deciding

factor in the state’s decision not to ‘Jamaicanize’ the sector.

Wint notes that the privatization negotiations between the state and Cable and

Wireless demonstrated several features of Jamaica’s domestic telecommunications

sector. First, Cable and Wireless’ management enjoyed amicable relations with the state

in its operation of the sector.41 As a result of the company’s importance to the sector the

state was more than willing to conduct the privatization negotiations in secrecy rather

than to invite the participation and involvement of other players. The process was

therefore not open to bids from other suppliers.42

4(,Ibid. p. 39.

41 Wint, p. 60.

42Ibid, p. 58.

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Wint argues that the outcome of the privatization process demonstrated that the

regime had ulterior motives other than meeting IMF Staictural Adjustment requirements

for dissolving the shares. He points out that the level of secrecy with which the shares

were transferred to Cable and Wireless reflected other motives. Wint contends that the

regime motivation might have been the state’s desire to acquire Cable and Wireless’

technological expertise, their capital, as well as their managerial expertise for the

modernization of Jamaica’s telecommunications infrastructure.43 Nevertheless, these

goals could also have been achieved using the resources of the American Satellite

Company since the Digiport project was only one aspect of Jamaica’s strategy to

modernize the infrastructure, and one which the initial feasibility study done by Jampro

demonstrated would enhance the overall income and goals of the sector. The level of

secrecy therefore represented the protection of Cable and Wireless’ control of the sector

rather than a mere acquisition.

Dunn and Gooden attribute to the regulatory regime that existed between the state

and Cable and Wireless the method by which the state transferred ownership to Cable

and Wireless, and the ease with which Cable and Wireless was able to gain ownership

of Jamaica’s telecommunications sector. The state failed to open the sale of shares in

TOJ to the highest bidder. Instead, it allowed Cable and Wireless to be the only bidder.

Telecommunications policymaking in Jamaica, as well as in other Caribbean nations,

they argue, has traditionally followed the pattern of a “private, almost secret

43Ibid. p. 57.

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arrangement between political and bureaucratic elites within the state, on one hand, and

the foreign or local operating company on the other.”44 They claim that in Jamaica, this

modus operandi has continued because the leadership in the Ministry of Public Utilities

holds views that tire similar to those held by elite managers within Cable and Wireless.

As a result, Cable and Wireless “has been operating without any independent regulatory

control to represent or protect the public interest.”45 The Ministry’s stated preference for

the operation of Cable and Wireless resulted in a shift in the Ministry’s role, that is, the

Ministry became the protector of Cable and Wireless’ interests. In carrying out its role,

the Ministry would soon articulate Cable and Wireless’ interests as the interests of the

sector and the nation as a whole.46

Dunn and Gooden attributed the exclusion of competition in the divestment of

telecommunications assets as the result of the “secret arrangement between political and

bureaucratic elites within the state” which characterizes the regulatory environment

between the state and Cable and Wireless. This arrangement was one that had been

forged as a result of Cable and Wireless’ ability to survive despite the sector’s legacy of

discontinuity. The sector’s history included the fluctuation between different

telecommunications providers such as Telephone and General Trust (T>) and

44 Dunn and Gooden, p. 3.

45Ibid.

46Letler from The Ministry to Jampro dated August 28, 1985, (JA), in which the Ministry strongly stated its opposition to the use of a US firm for the Digiport project.

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Continental Telephone Company. It was only two decades prior to the privatization

attempt of 1985 during which the operations of both companies proved unsuccessful

and unproductive, and resulted in the state extricating the Continental Telephone

Company’s holdings by nationalizing its assets in 1975. On the other hand, the

operations of Cable and Wireless had proven successful, with its profits increasing

significantly from the provision of international services and realized returns - all of

which allowed the state to realize a sizable revenue.47 [Fig. 5-2]

Wint also raises concerns about the National Investment Bank of Jamaica’s (NIBJ)

ability to promote the nation’s interests with Mayer Matalon at its helm, and who also

headed TOJ, given his fraternal relationship to Eli Matalon, the head of Industrial

Commercial Development Ltd., which acquired the state’s 21% share that was slated for

indigenous ownership. 48 Wint describes this arrangement as a “sweetheart deal” in

which actors who headed the privatization negotiations - the Matalon family and Cable

and Wireless - stood to gain both personally and corporately from the outcome of the

negotiations. The negotiations, structured in this manner, would inevitably eliminate

outside bidding through secret agreements between interested parties.

This Cable and Wireless / Matalon “sweetheart deal” of high returns and lengthier

monopoly privileges in the sector, Wint further contends, was the price the state had to

47In Figure 5-2, state revenue is indicated by the gap between gross profits and net after tax

48 Wint, p. 55

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pay in order to accomplish its goal of modernizing the sector. This reliance on the

sector, Wint maintains, placed the state in a weak negotiating position. On the other

hand, the state had in fact benefited from the investment decisions and the flow of

capital and income generated from Cable and Wireless’ operation in the island when

compared to its negative experiences with other providers such as Continental

Telephone Company and T>. The new competitive international environment and

Jamaica’s new niche in the offshore information industry made other alternatives

available to the state, such as the American Satellite Company, on which to base its

economic development agenda. Nevertheless, Cable and Wireless and Jamaica’s

domestic providers in favor of the exclusive use of Cable and Wireless, resisted the

possibility of considering alternative service providers.

Jamaica’s sector had initially involved the provision of domestic

telecommunications services by several different telecommunications providers.

Because of the failure of these firms to realize a profit on their investments, the sector

experienced turnovers in the providers of services, which in turn, led to the reduction of

investment capital to the sector. Cable and Wireless, however, remained the exception.

It remained a constant supplier of international services and later, a supplier of both

domestic and international components. Therefore, a more plausible explanation of the

Ministry’s willingness to transfer capital to Cable and Wireless without seeking the

highest bidder may be attributed to the Ministry’s institutional memory of failed efforts

in the past. The state’s past unsuccessful and unfavorable experiences with T> and

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Continental Telephone Company contrasted with long and close relations with Cable

and Wireless that were likely to explain the preferential treatment accorded to it.

Conclusion

Beginning in 1980, Jamaica’s telecommunications sector faced several challenges,

at the heart of which was the new competitive globed telecommunications environment.

The new international global environment created new economic possibilities for

Jamaica - it as well created new challenges for the nation’s development. Jampro rose

to the new opportunities with the introduction of the Jamaica Digiport initiative that

would establish a new offshore information processing industry, and which would

become a revenue source for the nation’s economic development.

The Ministry of Public Utilities and Transport also rose to the occasion to address

the new challenges that were posed by the global economy. The Ministry’s cross

subsidization strategy resulted in a stringent regulatory program whereby all entries into

Jamaica’s telecommunications sector were categorically denied.50 Its decision to

obstruct competition reflect its view that the introduction of competition in value-added

and long distance services would undercut the success of the cross-subsidization efforts

and would be a liability to the regime.’1 The closing of Jamaica’s telecommunications

sector was the Ministry’s attempt to prevent the liberalization that w'as occurring in the

M,Spiller and Sampson, p. 78.

51 Ibid. p. 76.

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U.S., European, and Japanese telecommunications market in 1984. The Ministry as

well did not want its initiative to revive Jamaica’s domestic component through the

proposed cross-subsidization measures to be undermined by the U.S. presidential

decision to establish a separate satellite system policy.

Amidst these international dynamics, Jampro initiated the Jamaica Digiport

project, expecting to gain from the more enhanced services and competitive pricing

structures of the new international environment. Jampro proposed using the American

Satellite Company to provide international satellite services for the Digiport. However,

introducing a new actor to the international component at that historical juncture raised

concerns from both the Ministry and Cable and Wireless as to the viability of cross

subsidization as a strategy for the revival of the fledgling domestic component. The

Ministry’s deliberation with Cable and Wireless resulted in the unification of both

international and domestic components in order to subsidize the domestic segment with

income from the international segment. Thus, Jampro’s proposal to use a non-Intelsat

satellite became an unwelcome gesture.

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CHAPTER SIX

DOMESTIC POLITICS, THE INTERNATIONAL SATELLITE REGIME AND THE JAMAICA DIGIPORT INTERNATIONAL

Introduction

The 1988 decision of the Jamaican government to establish the U.S.$ 2 million

Jamaica Digiport International facility heralded Jamaica’s official entry into the

information industry. This decision was the outcome of a series of negotiations that

lasted five years, beginning with a plan that would include the use of competitive

satellite systems and ending with the closing of the sector to competition. This chapter

seeks an answer to the question of why Jamaica undertook this course of action and why

it was able to bypass the new international practices of competition in the sector. It

examines the decision-making process that surrounded the acquisition of satellite

technology for the Digiport project in order to determine the factors that impinged on

the choice and the closing of the sector to competition.

The Digiport project was expected to attract new foreign investment to

Jamaica’s offshore information processing industry while creating job opportunities.

Located in the Montego Bay Free Zone area, the project targeted foreign firms which

provided services in the area of airline and hotel reservations, credit authorization, and

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other office procedures in the United States, Canada, and the United Kingdom.52 The

Digiport facility was expected to provide long distance voice, international toll-free

(800) calls, facsimile, video links, and high-speed data transmission services between

Jamaica and the United States.

The final arrangement for the Digiport was based on a consortium of three

telecommunications suppliers: American Telephone and Telegraph (AT&T) which

owned 35% of the total shares, Cable and Wireless International which owned 35%, and

Telecommunications of Jamaica (TOJ) which owned 30% of the shares. AT&T and

C&W were responsible for providing international services, whereas TOJ provided

support for the domestic telecommunications network. The consortium elected to

remain within the Intelsat satellite system.

The final agreement on the teleport project was the result of years of negotiation

and conflict between Jampro and the Ministry of Public Utilities and Transport. Jampro

had partnered with Teleport International in this venture using the satellite technology

and services of Nippon Telephone and Telegraph (NTT) and American Satellite

Company. Lending its support to the Ministry’s opposition was Telecommunications of

Jamaica - which included Jamintel and Jamaica Telephone company, Industrial

-^The Montego Bay free port zone at that time was one of two facilities which consisted of space for factories and warehouses that received 100%= tax exemption for all businesses, exemption front custom and import duties, exemption from foreign exchange control and no restrictions on the repatriation of profits and assets.

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Commercial Development, - the largest indigenous company on the Jamaican Stock

Exchange, the National Investment Bank of Jamaica (NIBJ), and the most powerful

political family - the Matalons, who owned shares in TOJ and ICD, and included a

family member who also headed the NIBJ. The anti-liberalization coalition also

included international support from Comsat, which objected to Jamaica’s use of a non-

Intelsat satellite system.

At the heart of the conflict was the issue of whether Jamaica would remain

within the Intelsat satellite system or would take advantage of the new climate of

liberalization that had swept the telecommunications industry in the 1980's, particularly

in the area of satellite technology. JNIP viewed the new economic climate as an

opportunity to take advantage of competitive prices and improved technology in the

telecommunications market. Jamintel’s view, however, was that the new climate of

liberalization was a threat to the stability and security of the business environment to

which the carriers had grown accustomed.

As the Ministry embarked on its restructuring of the sector, the Jamaica

Promotions (Jampro) initiated its plans to establish the Digiport project. Jampro had

positioned itself to draw from the confluence of global and technological changes for its

development agenda through the establishment of an offshore information processing

industry where the Digiport, using the competitive American Satellite Company (ASC),

would generate newr sources of revenue from which the state would benefit. The

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decision to use ASC, however, failed to materialize. This chapter chronicles the

activities that led to ASC’s defeat.

At one level the project signaled a new income stream for Jamaica’s

development. Yet at another, it represented a significant threat to existing revenue

sources that promised to undermine the cross-subsidization agenda that was being

negotiated between the Ministry and the sector’s service providers. The Ministry acted

to protect the sector’s revenue by monopolizing Cable and Wireless’ operations and

rigidly guarding the sector from competition. Jampro’s decision to use the American

Satellite Coiporation for the Digiport project, therefore, failed to materialize.

There are two ways that one might view Jampro’s actions in its attempt to

acquire the non-Intelsat satellite system. One might argue that Jampro attempted to

widen the conflict to the international arena in order to secure the involvement and

support of other transnational actors. Instead, Jamaica successfully managed to maintain

its autonomy from United States transnational actors. This study will argue to the

contrary. First, Jampro’s actions in the international community were solely in keeping

with the guidelines established by the FCC and by Intelsat. Second, Jamaica did not

maintain its autonomy from United States transnational actors. Rather, it merely

realigned with a different set of transnational actors whose interests were in line with

the winning coalition.

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Jamintel, one the other hand, used its position both internally and externally to

affect outcomes. Internationally, as Jamaica’s signatory to Intelsat, Jamintel created

alliances to gain the support of other members within the Intelsat board of Governors.

Domestically, TOJ, used the influence of its chairman, Mayer Matalon, to exercise

substantial leverage to overturn the decision to acquire the more efficient, more

competitive separate satellite system. By maintaining the Intelsat monopoly

domestically, it was successful in protecting the company’s declining income through

the sector’s strategy of cross-subsidization.

At the end of the Digiport negotiations Jampro’s objectives for its operation had

been significantly transformed with regard to ownership, control and selection of

satellite technology for the operation. Domestic interests and coalition activities played

a considerable role in the decision to close the sector, and thereby mitigating the effects

of global telecommunications trends. Additionally, domestic coalition politics were

significant in the defeat of liberalization in the satellite sector. This chapter analyzes the

processes that led to this outcome, demonstrating the interaction between sector

dynamics, domestic politics, and the international telecommunications regime.

The Teleport Initiative: the Planning Stage

In 1985 JNIP embarked on a strategy to attract United States corporations to its

offshore information processing industry. JNIP was the agency charged with the

responsibility of “promoting sustainable economic development in Jamaica by assisting

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the private sector to create jobs and increase productivity, capital formation and foreign

exchange earnings in targeted industries through the effective delivery of technical,

promotional and facilitator services both locally and overseas.”'’3 JNIP enlisted the

services of Teleport International (TI), a United States coiporation, to undertake a

feasibility study to determine whether the establishment of a second Free Zone would

enhance Jamaica’s information processing industry. The study concluded with a

recommendation for the establishment of a second Free Zone as well as the

establishment of teleport facilities. These facilities were to consist of two elements: a

satellite earth station and a local area network (LAN) serving companies in the free zone

area. The facilities were intended to reduce costs by buying satellite circuits on a

wholesale rather than retail basis.

JNIP embraced the idea of a teleport for several reasons. First, the deregulation

of the United States telecommunications industry created a number of new domestic

telecommunications entities, such as the American Satellite Corporation (ASC), that

served as either suppliers or brokers of services in the market of international satellite

services and were independent of the Intelsat system. JNIP had hoped to attract such

companies with the expectation of receiving cheaper and more enhanced satellite

services that were expected to accelerate the development of this sector. Third, the

project would incorporate a new and more favorable exchange rate adjustment policy

53Taken from Jampro’s Mission Statement in the lobby of Jampro’s headquarters in Kingston, Jamaica. West Indies. Prior to 1985, Jampro had been operating under the name Jamaica National Investment Program (JNIP).

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intended to attract service industries such as data entry and hotel, airline and car

reservation firms. The teleport would then be marketed to serve the needs of United

States corporations. Fourth, the teleport project would coincide with a grant from the

United Nations Conference on Trade and Development (UNCTAD) that was intended to

enhance the development of Jamaica’s information sector.54

In November of 1984 JNIP entered into discussions with Teleport International

to attract labor-intensive United States companies to Jamaica to take advantage of the

information service industries. The goal of the teleport initiative was to provide

“innovative communications services of the highest quality and lowest price” and “to

create the technological climate for an information services corporation to shift labor

and communications intensive operations offshore to a lower wage/higher productivity

location.”55 Teleport International’s plan was to increase employment within the

Jamaican labor force, while bringing facilities and telecommunications technology to

Jamaica that w'ould serve the telemarketing, reservation centers (hotel, airlines), remote

secretarial services, and data entry companies.''’6 Foreign companies would establish

their offices in the Jamaica Free Zone where they would use the teleport facilities to

conduct their businesses between Jamaica and their home countries. The teleport would

ensure reliable, high speed, and high quality communications for voice, data and video.

54 Interview with McLarty and Gooden. See also “Jamaica Digiport International: Creating jobs earning Foreign Exchange in The Daily Gleaner, July 24lh 1989.

5'Memo from Jampro to the Prime Minister, Oct 11, 1985 p.9 (Jamaica).

^’Interview with Mr. Winston Gooden on July 20lh 1993

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Teleport International proposed to accomplish this by providing Jamaica with private

two-way lines or one-way switched or unswitched voice, data, and video services

between points within the Free Zone and points outside of Jamaica. Under the

leadership of Teleport International, Jamaica would develop closer economic and

technological ties to the information industry of the United States.57

Teleport International argued that the use of a U.S. private non-Intelsat satellite

system would be more cost effective than that provided through Jamaica International

Telecommunications Company (Jamintel) and the Intelsat system.38 First, Teleport

International asserted that non-Intelsat providers tended to be 25-30% cheaper than

Intelsat for data lines and 15-20% cheaper for voice lines. Second, the non-Intelsat

companies under consideration were technologically superior to Intelsat, and provided

greater speed. Third, U.S. satellite companies had access to and expertise in marketing

data entry, telemarketing, publishing, reservations, and other professional services

within the U.S. domestic market, making them more desirable than Jamintel.39 Fourth,

the initiative would produce an absolute increase in communications flow between the

57Ibid.

58Interview with Gooden on July 20, 1993. Also see Memo from Teleport International to JNIP dated May 1984.

59Memo from Teleport International.

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U.S. and the Caribbean, making it consistent with the U.S. - Caribbean Basin Initiative

policy of closer involvement, and would lead to more technological transfers.60

As a result of Teleport International’s analysis, JNIP determined that the

American Satellite Corporation, a non-Intelsat U.S. satellite company, was selected to

provide private communications services between the United States and the Caribbean.

JNIP anticipated that this arrangement would produce an approximately 90% reduction

in costs below the current Intelsat rate.61 The anticipated savings was also expected to

make Jamaica more attractive to foreign companies that are both labor intensive and

communications intensive (that is, data entry and reservation firms), and who would

transfer production from the U.S. and other countries to Jamaica in order to benefit from

the cheaper labor force and the relatively lower telecommunication costs.62

The question of whether the American Satellite Corporation would divert

business from Intelsat was a decision of whether or not to proceed with Teleport

International’s plans. Because the teleport initiative was conceived as an entirely new

category of services, Teleport International argued that it would not attract existing

business from Intelsat and would not harm the existing Intelsat arrangements. Teleport

International further asserted that bringing new enterprises into the existing system

60Memo from Teleport International.

6lSee letter from Teleport International to JNIP dated August 21, 1985, as well as the application to the Ministry for a license dated October 2, 1985, (JA)

62 Memo from Teleport International.

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would lead to more traffic over the public switched network, which would only benefit

Intelsat and its Jamaican signatory.63

On November 2nd, 1984, when JNIP announced the teleport project, it

immediately proceeded to establish a consortium of service providers that would under

gird the teleport initiative.64 Interested parties included Nippon Telephone and

Telegraph (NTT), Ceito (a Japanese trading company), the American Satellite

Corporation, and the Bank of Tokyo. NTT sought to make the teleport project the

company’s first international project since the breakup of the NTT monopoly, and in

keeping with the company’s decision to find “good business ventures throughout the

world.”66 In December of 1984, NTT met with JNIP and Jamaica’s Prime Minister

Edward Seaga to discuss the teleport and to view the location. The Prime Minister

expressed his firm commitment to the Teleport International project. 66 His support was

followed by instructions to the Ministry of Public Utility and Transport in January of

1985 to ensure that Jamintel would refrain from any developments that would in any

way conflict with, or undermine, the teleport project. This project, the prime minister

declared, “forms the basis on which a whole range of data processing industries, as well

“ Interview with Gooden, August 1993.

64 Ibid.

“ Quoted from correspondence between NTT and JNIP in December 1984, (JA)

“ Ibid.

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as book publication and offshore businesses are expected to be established in Montego

Bay in an area reserved for the purpose.”67

The Federal Communications Commission(FCC) and the Teleport Initiative

The ability to operate the Digiport using a private satellite system was predicated

upon the successful maneuvering of three processes - two of which were external and

one internal. These were:

1. A license from the U.S. Federal Communications Commission, because a U.S. satellite company would be providing services between the United States and Jamaica

2. Approval from Intelsat to operate non-Intelsat satellite services

3. A special license pursuant to the Radio and Telegraph Control Act, from the Jamaican Ministry of Public Utility and Transport (MPUT).

Jamaica’s use of the American Satellite Corporation first required a license from

the United States’ Federal Communications Commission (FCC) to ensure non

interference with the Intelsat system.68 Under the FCC’s Buckley Letter, applicants

wishing to be connected with the international public switch therefore had to file under

section 214 of the United States Communications Act of 1934 and Part 63.01 of the

67Letter to Jamintel from Prime Minister Seaga dated January 28, 1985. (JA).

“ Federal Communications Commission, Separate Systems Notice, 100 FCC 2d at 294, 314; Separate Systems Order. 101 FCC 2d at 1090; Separate System First Reconsidered paragraph 5.

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Communications rules. These FCC provisions ensured that the activities of the United

States’ separate satellite systems were in keeping with United States treaty obligations

with Intelsat, which prevented connection to the international public switch network by

domestic separate satellite systems. Teleport International therefore requested permission

from the FCC to construct satellite facilities and for the American Satellite Corporation to

operate, transmit and receive satellite services for the provision of non-switched private

telecommunications lines that would be connected to the international public switched

system tor business communications between the United States and Jamaica.69 The

Jamaican government initiated the procedure with an inquiry addressed to the United

States Ambassador to Jamaica about the process. In response to Jampro's inquiry, the

United States ambassador explained in a letter that:70

U.S. policy and practice in authorizing international satellite communication services is that any U.S. international satellite system separate from Intelsat for international public satellite telecommunications between the U.S. and another country is restricted to communications not interconnected with the public- switched (telephone, telegram or telex) systems in either country. Service is therefore restricted to ‘private, intra corporate communications links’. Basic public telephone, telex and telegraph are off limits. This policy was designed

69Letter from Jampro to the Prime xMinister’s office dated June 5th 1986, (JA).

™By 1985, when this letter was written, JNIP’s name had been changed to Jampro or Jamaica Promotions.

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to protect Intelsat from traffic and revenue diversion in its major service, international telephone.'1

The American Satellite Corporation was required to conform to the terms of the Buckley

Letter and would be granted a conditional license by the FCC to construct and operate a

satellite earth station or other transponder facilities. While the FCC’s policy prohibited

domestic satellite companies from connecting with the international public switched

network, the FCC nevertheless allowed one exception to be made under the Buckley

Letter, which states that:

certainly exceptional circumstances may exist where it would be in the interest of the United States to use domestic satellites for public international telecommunications within nearby countries. One such case would be where the global system could not provide the service required. Another case would be where the service planned would be clearly uneconomical or impractical using the Intelsat system.72

7’Letter from US Embassy in Jamaica, Dec 9th 1985 to Mrs Corrine McLarty, Head of Jampro, (JA). The letter was in response to Mrs. McLarty’s inquiry concerning the Buckley Letter, which states the conditions under which the U.S.’s FCC would approve domestic satellite systems for use and its relevance to Jamaica’s request for satellite service.

72James L. Buckley, Undersecretary of State, to the FCC, July 23rd, 1981. FCC document

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On October 9, 1986, the FCC approved the provision of services between the

United States and Jamaica by the American Satellite Corporation. The FCC approval

signaled that the American Satellite Coiporation had met all of the following three

criteria: 1) the proposed service was consistent with all current FCC policies; 2) Intelsat

could not provide the proposed service, therefore the project would not cause economic

or technical harm; and 3) the proposed system was in fact a separate satellite system, that

is the provision of international service based on a satellite system that was either new or

significantly modified from the Intelsat system.7'1

Intelsat and the Teleport Initiative

The second phase of the licensing process that had to be undertaken by Jampro

was the appeal to Intelsat. Because of United States’ treaty obligations, the FCC required

that Teleport International’s request adhere to Intelsat’s Article XIV(d) on Technical and

Economic Coordination.74 Article XIV(d) specifically prohibited Intelsat member states

from engaging in any activity that would result in either technological or economic

interference with the Intelsat satellite systems. In June 1986, the government of Jamaica,

led by Jampro, petitioned the Intelsat Board of Governors for a license to establish

teleport facilities between U.S. and Jamaica using a two-way transponder provided by the

73INTELSAT, "Events in the United States Relating to Separate International Satellite Systems”, BG-72-44E B/6/87, Pg 5. The document may be found at the FCC office in Washington, D.C., United States of America.

74Letter from Jampro to the Prime Minister's office October 9th 1986, (JA). See also the FCC's File # I-T-C-85-187, “American Satellite Corporation”, as well as FCC File # I-T-C-85-188. The FCC documents may be obtained from the FCC office in Washington, D.C., U.S.A.

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American Satellite Corporation based on a satellite system that was either new or

significantly modified from the Intelsat system. Jampro had high expectations for the

approval of the teleport project based on the fact that the project was similar to existing

transponder services between the U.S. and Canada and the U.S. and Mexico.

The approval process consisted of three phases. First, the Director General

reviews the application and submits a recommendation to the Board of Governors.

Second, the Board of Governors, with the assistance of the Technical Committee, reviews

the request and submits its recommendations to the Assembly of Parties. Third, the

Assembly of Parties makes a final review and issues its recommendations.

Intelsat’s Board of Governors consists of states such as the U.S., which has a

direct and permanent voice. Jamaica, however, was represented by the signatory,

Compania del Telefono de la Republica Dominicana (CODETEL), which also

represented a coalition of five other nations of the region — the Bahamas, Barbados,

Haiti, Dominican Republic, and Trinidad. In order to place the teleport project on the

agenda of Intelsat’s Board of Governors’ meeting, jampro had to achieve either a

consensus among the other five states or a majority vote of the Board. Intelsat had

historically operated on the basis of a consensus rather than a majority. Jampro, therefore,

needed to lobby the five other nations represented by CODETEL, as well as other direct

Board members to persuade them of the critical economic importance of the teleport

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project to Jamaica.7’’ Therefore, in order to gain the assent of members of its group,

Jampro needed to establish the similarities between the teleport project and the

transponder projects of Mexico and Canada which had been approved by the United

States.76

Efforts to place the teleport project on the agenda of the Intelsat Board of

Governors’ meeting in June of 1986 in Rio de Janeiro failed. Trinidad, Dominican

Republic, Bahamas, and Barbados vigorously opposed the effort, but the foremost

opposition came from Jamaica’s signatory, Jamintel. Thus, Jampro was unable to obtain

the needed majority within the Caribbean group in order to place the matter directly

before the Board. “It became apparent that Jamintel had successfully lobbied these

members who were then all strongly opposed to the teleport project.’’77 Jampro

immediately began to lobby other Intelsat countries extensively in an attempt to increase

the level of support for the teleport project. Jampro held subsequent discussions with

Australia, Canada, France and the Cameroon — board members who showed lukewarm

support. Britain and its signatory, Cable and Wireless, the Nordic group (Denmark,

Sweden, Finland and Norway) and Germany, in contrast, were very strongly opposed to

the project.78 Opponents of the project believed that it would result in a loss of revenue to

75Ibid.

76Ibicl.

77 Ibid.

78lbid.

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Intelsat.79 Nevertheless, despite the lack of resounding support for the use of non-Intelsat

satellites, Jampro’s mission was not a loss. It was successful in gaining Intelsat’s

authorization for the use of the American Satellite Company.

Bureaucratic Politics and the Ministry of Public Utilities and Transport (MPUT)

The third process, which had to be navigated in order to liberalize Jamaica’s

satellite service, was the acquisition of domestic licenses to operate. Teleport

International was required to obtain a special license from the Ministry of Public Utilities

and Transport pursuant to the Radio and Telegraph Control Act. This license would

determine 1) the duration of the license; 2) the exclusive nature of the license; and 3) the

length of notice that was required by the government for termination of the license

agreement. A request for a 27-year exclusive contract without prior notice of termination

was made on October 2, 1985. This request was rejected by the Ministry, which instead

recommended a seventeen-year contract - ten years of which would be exclusive, and

with a two-year notice of termination.

The Ministry stipulated that after the ten-year exclusive period, the state would

have the option of assigning or disposing of the contract, thereby allowing other

applicants to offer similar services. Since the license was for international connections,

the Ministry also objected to the provision of services from one point to another within

the country. The license would only allow services from one point in the nation directed

79Ibid.

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at another point outside the country.

The Ministry expressed continued support for the use of Jamintel over a new

carrier by ensuring its continued monopoly over the domestic market.80 As early as

August 1985, the Ministry began articulating Jamintel’s concerns regarding the scope of

the proposed license, arguing that the new license would pose a potential threat to the

domestic telecommunications entities (Cable & Wireless, Jamintel and Telephone

Company of Jamaica (TOJ)). It began to voice strong opposition to the project, for several

reasons.81 To begin with, , the Ministry harbored doubts from the outset about obtaining

external approvals through the cumbersome process from both the U.S. Federal

Communications Commission and Intelsat. Secondly, it argued that the project would be

in competition with Jamintel.82 And thirdly, the Ministry viewed with great skepticism

several claims made by Teleport International.

One claim made by Teleport International during the negotiation process was that

the American Satellite Corporation would be exempt from article 14(d) of the Intelsat

agreement, which required approval from Intelsat’s Assembly of Parties prior to the

establishment, acquisition or utilization of any satellite facilities. This claim later proved

80A letter from the Ministry to Jampro dated August 28, 1995, (JA). See also the application for a license from Teleport International to the Ministry dated October 2, 1985, (JA).

The Ministry raised opposition to Jampro in a letter dated August 28, 1985, (JA).

82Jbid.

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to be false. The second of Teleport International’s claims - that it could immediately

begin services as soon as the physical facilities were in place as a result of a previous

agreement with the U.S. Department of State and the FCC, also proved false.83 The

Ministry’s concerns proved to be valid when the teleport project experienced a series of

delays due to Teleport International’s inability to secure the needed authorization from

both Intelsat and the FCC as it had hoped. “We have been proven correct,” the Ministry

declared. “They cannot achieve anything before the next Assembly of Parties scheduled

for I987.”84

The Ministry’s strongest objection to the project was based on its concern that the

teleport project constituted a dramatic change from the status quo of the Intelsat

monopoly system which allowed 21 U.S. domestic satellites to provide TV, audio, and

data services to Caribbean countries on a receive-only basis. The Ministry had agreed to

the receive-only condition in 1985 and reaffirmed the agreement the very week that the

teleport project was being reviewed. The Ministry viewed the teleport project as

representing a policy shift and a violation of Jamaica’s international obligations to

Intelsat.

The Ministry expressed a third area of opposition to the teleport project. This

opposition was on the grounds that Intelsat had at that period created similar services in

X?A letter to Jampro from the Ministry’s permanent secretary dated January 16, 1986, (JA).

84A letter to Jampro from the Ministry dated January 16, 1985, (JA).

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the formation of the International Business Services (IBS). IBS was available

immediately and provided teleport services, without the lengthy approval process needed

for use of non-Intelsat systems.. Opinions differed as to the comparative costs between

IBS and domestic satellites. Teleport International argued that its proposed domestic

satellites were more cost effective than IBS. Nevertheless, the Ministry asserted that

discussions were underway between Jamintel and COMSAT, on a possible collaboration

in a teleport project.

COMSAT had no objections to the idea of partnership with other national

signatories in the establishment of a teleport. The Ministry also felt that a partnership

with COMSAT would be an attractive proposition because COMSAT possessed in-house

marketing capabilities and because it had the capabilities to undertake such a venture as

the Digiport project. The Ministry noted that they should be presented with other

available options, such as the “vastly improved” services being offered by the Intelsat

system and not just the American Satellite Company, as Teleport International was

proposing.8,1

The Ministry expressed additional concerns about the rapid increase in the number

of domestic satellite corporations, stating that they had sprung up as a result of

deregulation, noting that in a few years, very few domestic satellite companies would

toMemo to the Prime Minister from the Ministry dated October 11, 1985, p. 9, (JA).

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remain.86 It strongly recommended that Jamaica go with the services of AT&T, RCA, or

COMSAT, which were associated with Intelsat and which had more experience in

providing telecommunications services. Moreover, they owned and operated their own

satellites, and in the case of COMSAT, had planned to build a teleport similar to that

proposed by Teleport International.87

Domestic Responses to the Jamaica Digiport Project

Telecommunications of Jamaica (TOJ) also had several concerns about the

teleport project and concurred with the Ministry’s objection. Jamintel was not allowed to

operate within the jurisdiction of the teleport under Teleport International’s initiative as a

result of the company’s belief that Jamintel did not possess the marketing capacity or the

technological superiority to successfully market the newly-formed information

processing industry.88 Teleport International also believed that Jamintel was also not in a

position to provide the type of services that were being contemplated by the project.89

Jampro argued that Teleport International’s marketing package for the project was

vastly superior to those of Jamintel and that the proposed teleport would not compete

with Jamintel. Jampro assured Jamintel that neither entity would experience loss of

R6Ibid.

87Ibid.

88A letter from Jampro to both Jamintel and JTC dated April 18th 1986, (JA).

89Ibid.

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income as a result of the teleport project because of its location in the protected duty-free

zone.90 In addition, no loss in income would result, Jampro argued, since Jamintel and

JATELCO/JTC were not in the business of providing dedicated leased lines.91 Jampro

also argued that since neither entity provided dedicated leased line services, the national

interest would be better served using by the existing arrangement since the Jamaican

Government would have equity in the project.92

Hardly persuaded by Jampro’s claims, in 1985 Jamintel embarked on negotiations

with AT&T to address the shortcomings that Jampro had identified.93 Jamintel argued

that the selection of AT&T as its service provider would ensure that it would shortly be

capable of offering private line data services using U.S. domestic systems at considerably

lower prices than those stated in its original proposal, which was based on the use of the

Intelsat system at prices that would be subject to the approval of the FCC,94 Jamintel

selected AT&T because its satellite network was quite extensive and its earth terminals in

the United States were located close to major cities.95

90 Ibid.

91 lb i d.

92Ibid.

93A letter to Jamintel from AT&T asserting AT&T’s support of JaminteFs marketing needs, November 26, 1985, (JA).

94A letter from Jamintel to Jampro dated December 3. 1985, (JA).

"Ibid.

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Jampro, however, was not swayed by Jamintel’s vision for the future. Instead Jampro

argued that in 1986 AT&T had embarked on its own study of the feasibility of

establishing teleport facilities in Jamaica and concluded that although a teleport was

economically and technologically feasible, AT&T did not wish to establish operations in

Jamaica.96 Jampro noted that its own research also revealed that IBM had expressed

unwillingness to enter territory where AT&T feared to tread and that Sprint and MCI

wanted to wait to view the results of Jamaica’s experience before contemplating

involvement.97 Jampro was, therefore, convinced that Jamintel would never be able to

fulfill its lofty goals for establishing a teleport in Jamaica.

In April of 1986, approximately two months after Jampro and Teleport

International had reached an agreement, the Cabinet met to deliberate on granting a four-

year period of exclusive rights for the provision of services. Under the terms of the

contract, Jamintel would be restricted from providing services using Intelsat, leaving the

American Satellite Corporation free to provide cheaper services. The American Satellite

Corporation would also be allowed to compete with Jamintel with respect to local or long

"Jampro’s “Teleport Terms of Reference,” November 2, 1984, (JA). See also letter to Jamintel, April 18, 1986, (JA).

^Ibid-

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distance public switched services. At the end of the four-year period, Jamintel would be

free to provide satellite services.98

The provisions of the license under deliberation by the Cabinet raised several

concerns. In a letter to Jamintel and the Ministry, Cable and Wireless articulated their

concerns about the impact of the introduction of another external telecommunications

entity on the viability of both Jamintel and JATELCO." Cable and Wireless stated that

...It is our understanding that the initial proposal by Teleport International would introduce special services which are NOT now being undertaken by Jamintel, but what we have before us is the provision of normal externa] telecommunications services between Jamaica and any point outside Jamaica unless Jamintel is unwilling to provide such service or is unable to offer in place of such services an adequate telecommunications service.”100

Cable and Wireless’ assertion that the services that were being orchestrated by

Teleport International were nothing more than “normal external telecommunications

services,” was an assertion that the American Satellite Company was in fact encroaching

98A letter of amendment to the license agreement from the Jamaica Attorney General’s office dated August 21, 1986, (JA).

"Letter to Jamintel and the Ministry from Cable and Wireless dated April 5, 1986, (JA).

100A letter to Jamintel and the Ministry from the chairman of the board of Directors of Cable and Wireless, April 5, 1986, (JA).

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on and a violation of the monopoly rights of Jamintel to provide “normal external

telecommunications services” within Jamaica.

Jamintel argued that the use of the American Satellite Corporation would cause a

diversion of income from the hotel and commercial sectors from Jamintel and JATELCO,

and would ultimately jeopardize the foreign exchange flows that would otherwise accrue

to the government.'01 Jamintel also had several concerns that the contract would permit

the American Satellite Corporation to operate, not only within the Free Zone, but to

points within Jamaica that were within a five-mile radius of the Free Zone, and therefore,

within the public external telecommunications service over which Jamintel had a

monopoly.102

Cable and Wireless disagreed with claims that the American Satellite Corporation

would be providing special services that were beyond the realm of Jamintel’s normal

activities. Cable and Wireless argued vehemently that granting a license to Teleport

International for the operation of the American Satellite Company was in fact creating

external telecommunications services that were in direct competition with Jamintel. Cable

and Wireless also noted that granting of a license for the teleport project would represent

a shift in government policy toward Cable and Wireless and a violation of the monopoly

agreement.

IOlIbid.

102A letter to the Prime Minister from Mr. Mayer Matalon, Chairman of the Jamaica Telephone company, on April 15, 1986, (JA).

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Teleport International’s license would seem to be the setting up of separate telecommunications facilities to serve new industries attracted to Montego Bay and would be the introduction of competition for international and domestic telecommunications services in Jamaica. Moreover, the new competition would be licensed to operate on a highly privileged basis, without the international and public service responsibility imposed on Jamintel, without the obligation to share revenue with JATELCO and with all the fiscal advantages of operating with a Free Zone area. This new policy would severely impair Jamintel’s viability and the interest of shareholders. Cable and Wireless therefore fully opposes the proposition to Jamintel’s Board of Directors.103

l03Clause 17 of the 1968 agreement between the Government of Jamaica and Cable and Wireless. This clause was later assigned to Jamintel.

104A letter to Jamintel and the Ministry from the chairman of the board of Directors of Cable and Wireless, April 5. 1986, (JA)..

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In May of 1986, there were discussions within the Cabinet as to whether Jamintel,

acting by itself or within any other relationship, would be able to compete against the

teleport project at the end of the four years. Jamintel was also concerned about “the

erosion of the license agreed upon” between Cable and Wireless and the Jamaican

government.105 This concern was the basis of a letter to the prime minister in which

Jamintel stated that “the company (Jamintel) now has in place an external

telecommunications system which can meet all the objectives and purposes of the

proposed license to Teleport International and the needs of the Free Zone. The Company

would also undertake the enhancement of such services where necessary to support the

development of the free port.”106

In September 1986, Jamintel and JATELCO increased the level of opposition

against the teleport project. The companies presented their arguments to the prime

minister and to Jampro. They argued that if the teleport were to provide

telecommunications services to all the companies in the Free Zone as well as to those

companies involved in information services outside the Free Zone, then a substantial

portion of their revenue would be lost as a result of companies that would migrate to Free

Zone areas to benefit from the cheaper services. Both companies argued that the

consequence of the teleport project would be a large number of firms switching from the

105A letter from Jamintel to Prime Minister Edward Seaga dated April 5, 1986, (JA).

l(xTbici.

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public network of Jamintel and Jatelco to private lines of the American Satellite

Corporation the teleport.107

Jamintel initiated discussions with COMSAT and AT&T to create a joint venture

between both companies and Jamintel to provide services comparable to American

Satellite Corporation. Jamintel argued that because of its extensive operations in the

United States, its ownership of earth satellites, and its telemarketing operations, AT&T’s

capabilities were superior to those of the American Satellite Corporation. Shortly

thereafter, Jamintel released its “Proposal for the Provision of Enhanced

Telecommunications Services for Jamaica’s Free Zone.” In this report Jamintel declared

itself as possessing the technical capability and the international contacts to provide and

market telecommunications services to meet the objective of the Jamaican government to

attract United States investors to Jamaica’s offshore information processing industry.108 It

declared that it was able to deliver a wide range of services and to attract businesses from

both local and overseas markets. Jamintel remained committed to its stance that its

technical and marketing capabilities were indeed superior to the arrangements made by

Teleport International.

i07A letter from Mr. Mayer Matalon to the Prime Minister dated April 15, 1986 (JA).

108A letter to Jamintel and JTC from JNIP dated April 18, 1986, (JA). See also JNIP document “Teleport Terms of Reference,” November 2, 1984, (JA). For the pro- Jamintel position, see JaminteFs “Proposal for he Provision of Enhanced Telecommunications Services for Jamaica’s Free Zone,” (JA).

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The Final Stage of the Teleport Project

Added to the number of dissenting voices in opposition to the use of the American

Satellite Corporation was the Industrial Commercial Development (ICD), a private

holding company that was the largest non-financial company listed on the Jamaican

Stock Exchange and which owned 21% of shares in the newly privatized sector. ICD

possessed the largest domestic shareholding in Telecommunications of Jamaica, the

parent company of Jamintel. ICD’s chairman was Eli Matalon, a brother of Mayer

Matalon who headed Telecommunications of Jamaica. As chairman of the Jamaica

Telephone Company, Mayer Matalon had strongly urged the Ministry to deny licenses to

the American Satellite Company on the grounds that it was a violation of contract

agreements with Cable and Wireless and a detraction of revenue from Jamintel. Eli

Matalon, also a partner in the telecommunications sector as a head of ICD, also pressed

for the dissolution of the old partnership and encouraged Prime Minister Seaga to

commence with the new arrangement headed by Jamintel. 109

Before the Jamaican Parliament met to discuss and vote on the issue of licensing

the teleport project, many changes had transpired that significantly transformed the

project from the original conception of its authors. The first of a series of changes was the

creation of the National Investment Bank of Jamaica (NIBJ) headed by Mayer Matalon.

The Prime Minister had appointed the Bank to negotiate and oversee the government’s

109Carol S. Holzgerg, Minority and Power in a Black Society: The Jewish Community in Jamaica (Lanham, MD: The North-South Publishing Co, 1987). pp. 207- 208.

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20% share in the teleport project.110 Matalon, in his capacity as the sector’s chief

negotiator was determined to preserve the viability of the newly restructured sector by

protecting it from competition. Matalon therefore strongly supported the use of Intelsat

satellites rather than a separate satellite system.1 u

In several letters to the Prime Minister, Matalon urged a partnership of Jamintel

with AT&T and Cable and Wireless instead of the Teleport International arrangement.

Matalon argued that AT&T possessed the marketing skills that Jamaica needed and that

their skills were superior to those of the American Satellite Corporation.112 As a result of

these recommendations, in 1989 the Prime Minister and his cabinet authorized the

abandonment of the Teleport International consortium using the American Satellite

Corporation, and instead, gave way to the creation of the new consortium which consisted

of Jamintel, the American Telephone and Telegraph Corporation (AT&T), and Cable and

Wireless (C&W). Intelsat replaced the American Satellite Corporation as the provider of

satellite services.

The winning coalition of the Ministry, Jamintel and Cable and Wireless, was

amenable to the new arrangement and was willing to issue an exclusive license to the new

consortium instead of the previous one. Under the new consortium, the teleport project

11 °A letter dated May 28, 1986 from NIBJ to Jampro, (JA).

’"See the letter to the Jamaican Prime Minister dated April 15, 1986, written by Mr. Mayer Matalon, then the Chairman of the Jamaica Telephone Company.

1 "Letter to the Jamaican Prime Minister dated April 15, 1986.

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was renamed the Jamaica Digiport International. Jamintel managed to achieve victory at

the domestic level, and this victory prevented Jamaica from putting into effect the

separate satellite systems rule, while instead reinforcing the monopoly system. Jamintel’s

success was despite Jampro’s appeal to the international rule pertaining to the operation

of separate satellite system.

Conclusion

The Jamaica Digiport was established as a means of providing new sources of

revenue for the state, and as a way of taking advantage of changes in the

telecommunications sector. These changes included the shift in ownership from national

telecommunication monopolies to a more competitive global environment. Changes were

also evident in the international satellite regime, which had also moved toward a more

competitive satellite market. The American Satellite Corporation and other newly

established separate satellite systems were a reflection of these global changes.

Nevertheless, despite these global changes, which were evident in Intelsat and the FCC’s

approval of the American Satellite Corporation’s involvement in providing satellite

services to Jamaica, the Jamaican government officially moved to reject the use of a non-

Intelsat satellite in the provision of service for the Digiport project.

The Digiport project became the battlefield in which those in favor of opening up

the sector to foreign competition battled with those opposed. On the one hand was

Jampro in partnership with the foreign Teleport International, and on the other stood the

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Ministry and Jamaica’s telecommunications suppliers, between whom was Cable and

Wireless. The coalition effectively influenced the position of the prime minister, which

resulted in his changing his December 1984 position from that in which he instructed the

Ministry not to obstruct the American Satellite Company arrangement to his 1986

position, when Cable and Wireless and the Intelsat system replaced the American

Satellite Company.

The restructuring which accompanied the cross-subsidization policy solidified the

monopoly control of Cable and Wireless over the sector and coincided with Jampro’s

attempt to liberalize the sector with the introduction of the American Satellite

Corporation. Jampro’s decision became a threat to the restructuring efforts, which were

designed to impede liberalization from taking root locally. Domestic interests played a

greater role in the state’s decision to close the sector, thereby mitigating the effects of

global telecommunications trends. The anti-liberalization coalition played a decisive role

in the defeat of the Digiport’s use of competitive satellite systems.

Two questions emerged from the analysis of Jamaica’s satellite acquisition for the

Digiport project: why did Jamaica take the course it did in closing the sector to

competition, and why was it able to do so in the light of existing international regulations

permitting and approving Jamaica’s use of competitive satellite systems? First, Jamaica

took the course it did because the interest of the winning coalition was one that benefited

from maintaining the Intelsat monopoly. The winning coalition consisted of the

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Ministry, Cable and Wireless, Telecommunications of Jamaica, ICD, the Matalon

brothers, and COMSAT, and it was opposed to competition.

Jamaica’s decision to close the sector to competition was based on its perceptions

of the needs of the domestic component, the viability of which rested heavily on the

success of the cross-subsidization between international and local communications. The

cross-subsidization policy was proposed and implemented by the Ministry to protect the

sector’s income and to address the negative effects that international competition might

have on the sector’s income. Its success required the preservation of the former monopoly

status quo. Second, Jamaica was unable to appeal to the regime regarding the decision

not to liberalize the sector because the majority winning coalition consisted of Intelsat

signatories, which served as decision makers within the regime. An appeal to Intelsat

would be an appeal to these signatories, creating the possibility for further conflict

between Jampro and its signatories.

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CHAPTER SEVEN

CONCLUSION

Introduction

The establishment of the Jamaica Digiport International in 1988 using the

satellite technology and marketing capabilities of Cable and Wireless, AT&T and the

Intelsat system was the result of five years of negotiations. This decision spelt victory for

one of two contending factions. On the one hand was Jampro in alliance with Teleport

International and the American Satellite Company which attempted to liberalize the

sector’s use of satellite technology with the operation of the American Satellite Company,

while on the other hand, the Ministry of Public Utility and Transport, in conjunction with

Telecommunications of Jamaica, ICD, NIBJ and the international support of Comsat,

elected to close the sector to competition.

The winning coalition in the Digiport negotiations desired the continuation of the

Intelsat monopoly which the sector had enjoyed since 1963. This Intelsat monopoly

operation using both Cable and Wireless and Telecommunications of Jamaica. In 1988

the Ministry extended these monopoly privileges beyond the area of satellite services to

the entire telecommunications sector. Its actions were part of a restructuring plan that was

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designed to prevent the operation of competitive satellite systems in the domestic

component. The goal of the restructuring plan was to facilitate the new

cross-subsidization policy to protect the domestic component.

This satellite acquisition process which resulted in the closing of the sector to

competition raised two salient questions which this dissertation addressed. First, what

explains Jamaica’s failure to liberalize the sector’s use of satellite technology as

demonstrated in its 1988 decision to prevent competition? Second, how was it possible to

undertake this measure amidst the powerful forces of global market liberalization trends

in the telecommunications sector as well as in international regime principles and

practices? It seeks to understand why the winning coalition was able to have such a strong

influence in the face of power global trends.

This dissertation concludes that there were two overriding sectoral characteristics

which allowed Jamaica the ability to withstand these two powerful global forces - the

liberalization of the sector and the impact of the sector’s telecommunications

multinationals on domestic politics. The first factor that led to the coalition’s success was

the structure and processes within which the regulation of the global sector occurred. The

Intelsat system functioned by setting guidelines for the operation of the global satellite.

Among the guidelines was the separate satellite systems policy whereby national systems

were permitted the use of separate systems which do not undermine Intelsat’s operations.

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Paradoxically, the decision to allow the use of separate satellite systems was

authorized by Intelsat’s signatories whose interest it was to have the sector remain closed

to competition. In Jamaica, the signatory had an interest in the market’s remaining closed

and would benefit from such a closing. As a result, Intelsat’s signatories failed to act to

open the market in accordance with Intelsat’s policies. Coalition politics within the

country had a greater effect on Jamaica's failure to liberalize the use of satellite services

than global trends and regime practices. These domestic interests in the sector served as

the second set of factors that led to the closing of Jamaica’s sector to competitive satellite

technology.

International Telecommunications Satellite Regime

One answer to the question of why the winning coalition was able to be as

effective as it was in the face of global trends and regime policies can best be understood

in the context of the Intelsat satellite regime w'hich had been in place since 1963. The

purpose of the organization was to cooperatively provide uninterrupted global satellite

services to all interested nations. Since its inception, the national signatories played a

central decision-making role in Intelsat and all decisions to allow competition in the

global satellite market had to meet with their approval. The signatories were empowered

to make decisions concerning domestic satellite operations independent of domestic

decision-making processes. This structure empowered signatories to selectively restrict

competition from non-Intelsat suppliers.

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Until 1985, Intelsat was the monopoly supplier and sole regulator of the

international satellite market. As a result of new telecommunications firms’ wishing to

enter the satellite sector, both the United States and Intelsat established separate satellite

systems policies to facilitate the operation of these independent suppliers. However, this

ruling that favored the entry of new firms was not enough to erode Intelsat's domination

of the global satellite market monopoly. The ability of separate satellite systems to

effectively operate locally was undermined by the signatories. Intelsat's continued

dominance can therefore be best explained by the actions of signatories domestically and

at the level of the international institution.

While the Intelsat system expressed a commitment to opening the system to

competition, the signatories’ interests were clearly enhanced by the preservation of the

Intelsat monopoly. As the primary decision-makers as well as the organization's principal

investors in the Intelsat system, the signatories, through the Meeting of Signatories and

the Meeting of Parties, are empowered to protect the organization's investments.

Intelsat's structure and the role played by signatories within the system therefore

functioned to protect the status quo of the single global system and to bar the entry of

other firms whose activities did not enhance Intelsat’s investment goals. Intelsat's

leadership therefore served as gatekeeper - monitoring the entry of non-Intelsat satellite

firms within the global market. As a result, the monopoly status quo remained intact

because of limitations placed by Intelsat’s signatories on the operation of competitive

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firms because the liberalization of Jamaica’s domestic satellite services was inconsistent

with signatories and their interests.

The Jamaica Telecommunications Sector

The second factor that conditioned the success of the winning coalition was their

material interests. These interests served as the impetus for their action. In 1984, when

Jampro attempted to liberalize the sector to a non-Intelsat satellite system, it was based on

two factors. First was the trend toward liberalization of the global telecommunications

services. The period had witnessed the breakup of the AT&T monopoly in the US with

similar actions in Great Britain and Japan and with it the entry of new firms into the

sector. The second reason for the decision was the set of conditionalities prescribed by

the IMF Structural Adjustment Program of 1982-1987.113 The IMF had required that

Jamaica liberalize its telecommunications sector as a precondition for receiving future.

Jamaica was subsequently able to get authorization to liberalize satellite services at two

levels, that of the FCC and Intelsat’s Director General in 1986. Nevertheless, despite

these approvals, domestic approval was not forthcoming, resulting in the closing of the

sector to competition.

Proponents of the decision to close the sector were concerned that a competitive

international environment where separate systems were allowed to operate posed a threat

to the income of Jamaica’s domestic component. While the sector had begun to

1 l3McCormick, p. 146.

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experience rapid growth in international telecommunications services, that growth was

matched only by the rapid decline in revenue from domestic telecommunications services

(Fig. 5-1). The declining income in the domestic sector created a dilemma for which a

solution was sought. A cross-subsidization policy was designed to address this dilemma

by subsidizing the domestic component with income from that of the international. But

first, a major restructuring of the sector was planned that would unite both components

under a single ownership and closing the sector to competition. The interests of the

winning coalition had indeed prevailed.

Contribution to the Literature

Cortell and Davis argue that international regimes play an important role in

resolving domestic conflict particularly where there is close societal involvement in

decision-making. During such a conflict, regimes are important, they argue, because

coalition members may strategically use regime norms to enhance the probability of their

success in solving domestic disputes. This strategy has a greater propensity for success

when the decision-making institution is decentralized and there is a close societal/state

relation. Actors who are able to appeal to international regime norms are more likely to be

legitimized, resulting in the successful implementation of its policy. This appeal to

international norms is “a legal right by which to elicit the government’s implementation

of the rule’s prescription.” 114

ll4Cortell and Davis, p. 457.

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The international telecommunications satellite sector, however, is an exception to

this phenomenon. The international regime principles were at odds with the interests of

the winning coalition, many of whom were signatories of Intelsat. As a result, Jampro’s

appeal to the veiy regime principles which were approved by Intelsat itself through the

licensing process, were not honored and Jampro’s requests were denied. Jampro’s request

to liberalize the sector was denied rather than legitimized.

Risse-Kappen also argues that international regimes are significant in affecting

domestic outcomes. Their significance is based on three characteristics: the relative

strength of states, the nature of state-society interaction and the nature of the policy

network. Within the context of these characteristics, the extent to which the sector is

regulated at the international level, he argues, determines the effectiveness of these

structures. He concludes that international institutions are expected to reduce coalition-

building requirements for transnational coalitions, especially those who advocate norm-

compliance.115 The telecommunications satellite sector also serves as an exception to this

case. Here, although highly regulated, those advocating compliance to Intelsat’s policy to

allow liberalization were ineffective in opening Jamaica’s sector to competition. Instead,

the winners in this conflict effectively engaged in their own coalition-building to oppose

the opening of the sector to competition. Competition was effectively supplanted,

producing the outcome that was inconsistent with the decision of the Intelsat regime that

would liberalize the sector. The international regime policy which led to the consideration

115 Risse-Kappe, p. 30.

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of a competitive satellite system for the Digiport proposal constituted a conflict of

interests for the Intelsat signatories and this conflict was resolved by implementing a

decision which opposed regime policies. Jampro’s appeal to Intelsat’s rules and

agreements had failed to produce the desired outcome.

Future Research

The year 1994 signaled two major milestones in the transformation of the

international telecommunications sector. The first was the elimination of the Intelsat

regime as the international institution charged with the responsibility of global

governance in the international satellite sector. The second was the creation of the World

Trade Organization (WTO) charged with the dual responsibilities of liberalizing the

global telecommunications sector and negotiating telecommunications agreements, h

April of that year, ministers from thirty-three nations signed the 1994 Marrakesh Treaty

for the establishment of the WTO.

WTO held the responsibility for administering all agreements that were

established within the framework of the Uruguay Round. In the area of

telecommunications, its goals were the establishment of a multilateral trade network that

would increase the level of investment in telecommunications equipment and services

and progressively liberalize the telecommunications markets, opening up monopoly

markets to competition. The signing of the General Agreement on Trade in Services had

far reaching implications since, for the first time, it placed trade in telecommunications

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services within the realm of the multilateral trading system.116 When the negotiations had

ended, sixty-nine (69) nations, forty of which were developing states, also agreed to

introduce domestic regulatory regimes consistent with the new WTO rules. Among them

were Jamaica, Barbados, and Trinidad and Tobago, three nations which have had

longstanding monopoly telecommunications sectors that have been completely dominated

by Cable and Wireless.

Several rounds of negotiations have resulted in the agreements to enhance trade in

telecommunications goods and services. The Negotiating Group on Basic

Telecommunications (NGBT), which is open to all states and the European Community,

lasted from April 1994 to April 1996 and resulted in 48 states committing to open

national telecommunications markets to competition. The Group on Basic

Telecommunications (GET), also open to all states and consisting of fifty five states and

the European Community, lasted from July 1996 to February 1997. It addressed satellite

service issues and resulted in the signing of the Basic Telecommunications Agreement

(BTA) in February 1997 and the Information Technology Agreement in April of the same

year.

The creation of the new WTO regime in 1994 represented a new' international

telecommunications regime, replacing the former Intelsat regime. Under the new accord

signed in 1997, the global sector would be governed by the rules of the WTO process.

116Http://www'.vvto.org/english/tratop e/servete e/tel04 e.htm.

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The norms of free trade would govern trade in basic telecommunications services as well

as in higher level value-added telecommunications services such as satellite, internet and

different types of data services. Parties to the WTO agreement were committed to open

up their telecommunications service markets to direct foreign investment and to the

removal of barriers within the domestic telecommunications sector, including the removal

of barriers to access of public telecom networks under nondiscriminatory terms. Truly

successful negotiations would be reflected by the opening for the first time of many

domestic markets of Intelsat’s signatories that had remained closed during the period

covered by this dissertation.

The change in the international satellite regime from Intelsat to the WTO provides

a framework for the comparative analysis of the effects of institutional factors on

domestic outcomes. Several key questions would compare the impact of the WTO on

domestic decisions to maintain an open or closed domestic sector and whether or not

there are differential effects on domestic outcomes. Other questions might include what is

the relationship between the WTO regime and the former domestic signatories. How has

domestic political outcomes been affected by this regime change, particularly as it relates

to the opening and closing of domestic telecommunications sectors? Has the new WTO

structure been more successful in addressing liberalization of domestic sectors? If so,

what is the relationship between former signatories, the state and the new corporations

seeking access to domestic markets under the new WTO system?

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Conclusion

The analysis of the Jamaica Digiport negotiations raised two key questions: why

Jamaica opted to maintain a closed telecommunications monopoly, preventing the use of

the American Satellite Corporation and how was it able to do so at that historical juncture

of increasing liberalization trends. The trend toward liberalization was evident in the

major industrialized nations, primarily the United States, Europe and Japan, even though

Intelsat very cautiously embraced the idea of liberalization. Despite limitations on the

new firms, Intelsat granted its authorization to liberalize Jamaica’s telecommunications

sector.

Despite these trends, Jamaica failed to liberalize its telecommunications sector.

This dissertation demonstrated that Jamaica’s failure to do so can best be explained by

sectoral interests and characteristics - the most significant of which were a) the role of

Intelsat’s signatories in both domestic and international decision-making of the sector; b)

the close relationship between state bureaucracies and signatories that operate in the

sector; and c) the interests of these signatories which was to maintain the monopoly

sector so as to implement the cross-subsidization of domestic operations with income

from the international operations.

The liberalization of the telecommunications sector served as a trigger for the

chain of events that followed. These events included changes in Intelsat rules and norms,

and the closing of Jamaica’s telecommunications sector to competition. While Intelsat’s

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signatories approved the use of separate satellite systems, Jamaica’s signatory had the

ability to block its enforcement, thereby ensuring that liberalization would fail. The

question posed for future research is: could liberalization in Jamaica only occur if there

were a transformation in the Intelsat regime in which there were a change in the existing

structure of governance or would a new international telecommunications satellite regime

that was structured differently be more effective in producing different domestic options?

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APPENDIX II: GLOSSARY

common carrier A business organization that provides regulated telephone, telegraph, telex, and data communications to the general public and is regulated by an appropriate regulating agency, e.g. AT&T in the US, British Telecom in the United Kingdom

COMSAT Communications Satellite Corporation, the United States’ signatory to INTELSAT, is a private corporation that provides technical and operational support services for the transglobal satellite system. COMSAT previously served as manager of INTELSAT.

earth station The portion of a satellite system that is located on the earth surface. An earth station receives signals from and transmits to a satellite in space.

FCC The federal Communications Commission is a board of five commissioners appointed by the president of the United States under the communications Act of 1934. It is responsible for regulating all interstate and foreign communications originating in the United States by means of radio, television, wire, cable and satellite.

fiber optics Transmission technology in which information is transmitted over a very thin optical beam.

Reproduced with permission of the copyright owner. Further reproduction prohibited without permission. geosynchronous satellite A satellite positioned about 36,000 km above the equator. The satellite’s equatorial orbit is synchronous with the earth therefore the satellite appears to be stationary. It is used for long distance communication. It is also referred to as geostationary satellite.

Intelsat The International Telecommunications Satellite Organization is an international inter-governmental organization responsible for the design, development, construction, and operation of the space segment of the global communications satellite system. It own and operates a global system of geosynchronous satellites that provides international telecommunications services all over the world.

ITU The International Telecommunications Union, an international intergovernmental organization that coordinates and regulates international services in telephone and telegraph services.

local area network (LAN) A network that connects various telecommunications devices within a limited geographical area.

PTT Post, Telephone and Telegraph are government agencies that provides the services for mail, telephone, and telegraph in most countries of the

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world except those in North America.

public switched telephone network A network established and operated by any common carrier that provides circuit switching between public users.

public utilities commission The state regulatory board that is responsible for communications regulation and other public utilities regulation.

satellite A man-made vehicle placed in orbit around the earth to receive information from one point on earth and re-transmitted to another point on earth, thus providing a long distance communication link.

satellite communications A communication technique in which a geo synchronous satellite is used to relay information from one earth station to another.

telecommunications The process that allows the transfer of information (audio, video, data) in the form of electromagnetic signals from a transmitter to one or more receivers. teleconferencing A conference in which participants from a remote location communicate to each other with the help of telecommunications lines.

teleport A telecommunications facility that consists of high speed satellites, a private telephone network and the capacity to transport data at high speed.

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transponder A radio or radar transmitter/receiver activated for transmission by reception of a predetermined signal. Communications satellites contain several transponders to increase the number of transmission channels.

video conferencing A type of teleconferencing in which geographically separated groups communicate with each other over telecommunication links with the help of audio and video technology.

Westar The name of a communication satellite owned by Western Union.

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APPENDIX III : Private Satellite Systems Providing Services by Region, 1996

North; 03 .3.;

America.

Central

Middle Arfiefica, South

Asia Past Caribbean America Europe Australia Africa '

PanAmSat PanAmS PanAmSat PanAmS PanAmS PanAmS PanAmS

at at at at at

Columbia* Asiasat Columbia* Hughes* Columbi Asiasat Thaicom

117 a*

Apstar Orion* Orion* Optus

Asiasat Telstar/ATT Asiasat

Palapa Anik Astra

JCSAT Alascom Thaicom

Superbird Hughes-

Galaxy*

BS-Yuri GE

A me ri com*

Thaicom EchoStar

Westar*

Source: United States General Accounting Office: Telecommunications: Competition

Issues in International Satellite Communications, p. 40.

n7Asterisks indicate United States separate satellite systems

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APPENDIX V: INTELSAT Board of Governors MEMBER VOTING SHARE AFRICA GROUP I Angola, Ethiopia, Ghana, Kenya, Malawi, 1.12 Mauritius, Rwanda, Tanzania, Uganda, Zambia AFRICA GROUP II Benin, Burkina Faso, Cameroon, Central 1.29 African Republic, Chad, Congo, Cote d’Ivoire, Gabon, Guinea, Mali, Niger, Senegal, Tongo, Zaire ARAB GROUP I Libia, Mauritania, Sudan, Syrua, Tunisia, 1.46 United Arab Emirates ARAB GROUP II Algeria, Egypt, Lebanon, Saudia Arabia, 2.24 Yemen ARAB GROUP III Iraq, Jordan, Kuwait, Oman, Qatar 1.61 ARGENTINA/CHILE/PARAGUAY 1.16 ASEAN GROUP I Indonesia, Singapore 1.8 ASEAN GROUP II Malaysia, Philippines, Thailand 1.79 ASIA PACIFIC GROUP 0.98 AUSTRIA/GREECE/SWITZERLAND/LTECHTENSTEIN 1.V3 BELGIUM/NETHERLANDS/LUXEMBOURG 1.84 BRAZIL/PORTUGAL/URUGUAY 1.76 CANADA 2.68 CARIBBEAN GROUP Bahamas, Barbados, Dominican Republic 0.82 CENTRAL AMERICA GROUP Costa Rica, El Salvador, Guatemala, 0.3 Honduras, Nicaragua, Panama CHINA 1.56 COLOMBIA/ECUADOR/BOLIVIA 1.52 FRANCE/MONACO 1.52 GERMANY, FEDERAL REPUBLIC 3.49 : INDIA 0.99 : IRAN/KOREA/PAKISTAN/TURKEY 3.46 ITALY/VATICAN CITY 2.14 JAPAN 4.91 NORDIC GROUP Denmark, Finland, Iceland, Norway, 1.92 Sweden

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SPAIN 1.84 UNITED KINGDOM/IRELAND 13.84, ; UNITED STATES 26.91 ; VENEZUELA/PERU 1.24 Source: INTELSAT, Board os B-81-E, July 1989

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ARABSAT India (TV services) ASIASAT Hong Kong, Bangladesh, Thailand ASIASAT-C China ASTRA Australia, Austria, Belgium, Denmark, Finland, Sweden, Norway, France, Monaco, F.R.G., Iceland, Netherlands, Switzerland, Yugoslavia AUSSAT Australia, New Zealand DFS Sat F.R.G. to France, Luxembourg and Netherlands (one way), Sweden, Switzerland (TV Reception from Germany) System EUTELSAT Monaco, UK HISPASAT Bolivia, El Salvador, Nicaragua, Peru, Venezuela, Honduras Intersputnik Algeria, Belgium, Canada, Finland, Iraq, Israel, Italy, Nicaragua, UK, US, Vietnam, Germany, US, USSR + non-INTELSAT nations PAPAPA B2 ASEAN, Australia, Indonesia (TV and audio use), Thailand, Sri Lanka, Portugal, UK to Indonesia PANAMSAT Argentina, Austria, Bahamas, Belgium, Belgium & Sweden, Bolivia, Brazil, Chile, Columbia (Latin Beam). Denmark, Ecuador, France, Guatemala, Haiti (LB & NB), Honduras (domestic serv.), Italy, Jamiaca, Mexico, Monaco, Netherlands, Netherland Antilles, Panama, Paraguay, Peru (domestic serv.), Portugal, Spain, Switzerland, Thailand, Trinidad & Tobago, UK (domestic serv.), Uruguay, Venezuela, Yugoslavia, US & Costa Rica; US & Domican Rep.; US & Eastern Europe; UK & Europe; UK & Germany; US & Luxembourg; US & UK, US & F.R.G. between US and Non-INTELSAT member nations in Latin America and the Caribbean; between Dominican Republic, Costa Rica, US and non- INTELSAT Eastern European nations. SATCOM Denmark, US, Mexico SATCOM II-R Greenland SBTS AI & Uruguay A2 SPACENET II US & Mexico

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APPENDIX VI: Non-INTELSAT Separate Systems That Received Permission to Operate STATIONAR- Australia

14 SUPERBIRD Japan TELECOM 1 China, France, Germany TELE-X Finland USSR DOM SAT US DOM SAT WESTAR V US

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APPENDIX VII: Number of Main Lines (Thousands)

Year Number of Main Lines (Thousands)

1971 35 1972 36.5 1973 38.2 1974 42.3 1975 47.8 1976 50 1977 52 1978 54 1979 54 1980 54 1981 55 1982 59.2 1983 62.4 1984 67 1985 69.8 1987"8 76.7 1988 85.2 1989 90 1990 106 1991 132 1992 168 1993 209

Source: Alvin G. Wint. Pioneering Telephone Privatization p. 53.

118 In 1987, the fiscal year-end for both companies was changed from December to March. The period represented by these data is the fifteen-month period from January 1986 to March 1987.

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